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) -- EXFO (Nasdaq: EXFO) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.
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- The revenue growth came in higher than the industry average of 2.6%. Since the same quarter one year prior, revenues slightly increased by 8.5%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- EXFO 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. To add to this, EXFO has a quick ratio of 2.45, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for EXFO INC is rather high; currently it is at 63.26%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, EXFO's net profit margin of 2.60% significantly trails the industry average.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Communications Equipment industry and the overall market, EXFO INC's return on equity significantly trails that of both the industry average and the S&P 500.