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) -- Inuvo (AMEX: INUV) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and generally higher debt management risk.
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- INUVO INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, INUVO INC turned its bottom line around by earning $0.01 versus -$0.35 in the prior year. This year, the market expects an improvement in earnings ($0.13 versus $0.01).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 331.9% when compared to the same quarter one year prior, rising from -$0.29 million to $0.68 million.
- The gross profit margin for INUVO INC is rather high; currently it is at 68.17%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, INUV's net profit margin of 6.66% significantly trails the industry average.
- INUV's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 28.50%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- Net operating cash flow has decreased to $0.38 million or 41.80% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.