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NEW YORK ( TheStreet) -- KongZhong Corporation (Nasdaq: KONG) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow.

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Highlights from the ratings report include:
  • KONG 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 this, the company maintains a quick ratio of 2.64, which clearly demonstrates the ability to cover short-term cash needs.
  • 45.32% is the gross profit margin for KONGZHONG CORP -ADR which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -6.08% is in-line with the industry average.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Software industry and the overall market, KONGZHONG CORP -ADR's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • Net operating cash flow has significantly decreased to $4.49 million or 68.75% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

KongZhong Corporation provides digital entertainment services in the People's Republic of China. The company operates through three main business units: WVAS, Mobile Games, and Internet Games. The company has a P/E ratio of 19.8, above the S&P 500 P/E ratio of 17.7. KongZhong has a market cap of $332.7 million and is part of the technology sector and computer software & services industry. Shares are up 26.3% year to date as of the close of trading on Thursday.

You can view the full KongZhong Ratings Report or get investment ideas from our investment research center.

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