Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link. NEW YORK ( TheStreet) -- Perfect World Co. Ltd. ADR repr Class B (Nasdaq: PWRD) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.
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- PWRD's revenue growth has slightly outpaced the industry average of 6.5%. Since the same quarter one year prior, revenues slightly increased by 9.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- PWRD's debt-to-equity ratio is very low at 0.07 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, PWRD has a quick ratio of 1.93, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for PERFECT WORLD CO LTD is currently very high, coming in at 75.51%. Regardless of PWRD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PWRD's net profit margin of 11.39% is significantly lower than the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 46.5% when compared to the same quarter one year ago, falling from $24.61 million to $13.16 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. When compared to other companies in the Software industry and the overall market, PERFECT WORLD CO LTD's return on equity is below that of both the industry average and the S&P 500.