Why Cray Inc (CRAY) is Enjoying Double-Digit Gains

NEW YORK (TheStreet) -- Cray Inc (CRAY) is enjoying double-digit gains during Tuesday's trading session, soaring 13% to $30.70 by midday.

A day earlier, the company which develops supercomputers and big data storage said it expects to achieve its previously provided 2013 revenue guidance of $520 million when it reports fourth-quarter earnings Feb. 10. Analysts surveyed by Thomson Reuters anticipate revenue of $518.95 million.

"During the fourth quarter, we installed and completed the acceptance process on more supercomputers than we have in any quarter of our history, breaking records for both quarterly and annual revenue," said CEO Peter Ungaro in a statement.

For full-year 2014, the global supercomputer leader said it expects to pull in $600 million in revenue, above consensus of $596.3 million.

Small-cap competitor Silicon Graphics International Corp (SGI) is rallying in sympathy, gaining 5.3% to $14.17.

TheStreet Ratings team rates Cray Inc as a Hold with a ratings score of C+. The team has this to say about their recommendation:

"We rate CRAY INC (CRAY) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • CRAY's very impressive revenue growth greatly exceeded the industry average of 2.8%. Since the same quarter one year prior, revenues leaped by 52.1%. 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.
  • CRAY has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.34, which illustrates the ability to avoid short-term cash problems.
  • 43.88% is the gross profit margin for CRAY INC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, CRAY's net profit margin of -20.27% significantly underperformed when compared to the industry average.
  • 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. Compared to other companies in the Computers & Peripherals industry and the overall market, CRAY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$108.49 million or 277.72% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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