Why SGOCO Group (SGOC) Stock Is Plunging Today

NEW YORK (TheStreet) --SGOCO Group  (SGOC) plunged 27.64% to $2.88 at 11:01 a.m. on Thursday after the company reported unaudited preliminary results for the fourth quarter of the fiscal year 2013.

The company, which designs, distributes and develops flat-panel displays, reported a 30.3% year-over-year decline in revenue to $44.2 million from $63.4 million. Net income plummeted 62.7% year over year to $1.2 million from $3.2 million, while earnings per share also dropped 63.2% to 7 cents from 19 cents. Gross profit fell 28.2% to $3.5 million from $4.9 million in the fourth quarter of 2012.

SGOCO said in its statement that the sharp revenue decline comes from the "significant growth" the company had in the fourth quarter of 2012; the 2013 quarter, on the other hand, was "normal."

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TheStreet Ratings team rates SGOCO GROUP LTD as a "sell" with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SGOCO GROUP LTD (SGOC) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been poor profit margins."

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

  • The gross profit margin for SGOCO GROUP LTD is currently extremely low, coming in at 8.11%. Regardless of SGOC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, SGOC's net profit margin of 5.01% compares favorably to the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Household Durables industry and the overall market, SGOCO GROUP LTD's return on equity is below that of both the industry average and the S&P 500.
  • SGOCO GROUP LTD reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, SGOCO GROUP LTD reported lower earnings of $0.25 versus $1.04 in the prior year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Household Durables industry. The net income increased by 297.4% when compared to the same quarter one year prior, rising from -$1.09 million to $2.15 million.
  • This stock has increased by 204.71% over the past year, outperforming the rise in the S&P 500 Index during the same period. Despite the fact that the stock's value has already enjoyed nice gains in the past year, we feel that the risks surrounding an investment in this stock outweigh any potential future returns.
  • You can view the full analysis from the report here: SGOC Ratings Report

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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.

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