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) -- Taomee Holdings (NYSE: TAOM) has been upgraded by TheStreet Ratings from hold to buy. 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, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.
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- The revenue growth came in higher than the industry average of 14.2%. Since the same quarter one year prior, revenues rose by 43.4%. 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.
- TAOM 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 4.18, which clearly demonstrates the ability to cover short-term cash needs.
- Compared to its closing price of one year ago, TAOM's share price has jumped by 27.05%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, TAOM should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- TAOMEE HOLDINGS LTD -ADR's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, TAOMEE HOLDINGS LTD -ADR reported lower earnings of $0.14 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($0.20 versus $0.14).
- The gross profit margin for TAOMEE HOLDINGS LTD -ADR is currently very high, coming in at 80.02%. Regardless of TAOM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TAOM's net profit margin of 9.84% is significantly lower than the industry average.