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) -- Performant Financial (Nasdaq: PFMT) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, generally higher debt management risk and poor profit margins.
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- The revenue growth came in higher than the industry average of 3.8%. Since the same quarter one year prior, revenues rose by 18.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Services & Supplies industry. The net income increased by 248.4% when compared to the same quarter one year prior, rising from $1.82 million to $6.35 million.
- PERFORMANT FINANCIAL CORP 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 year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, PERFORMANT FINANCIAL CORP increased its bottom line by earning $0.74 versus $0.44 in the prior year. For the next year, the market is expecting a contraction of 42.6% in earnings ($0.43 versus $0.74).
- PFMT has underperformed the S&P 500 Index, declining 14.23% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- Currently the debt-to-equity ratio of 1.60 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Regardless of the company's weak debt-to-equity ratio, PFMT has managed to keep a strong quick ratio of 1.82, which demonstrates the ability to cover short-term cash needs.