Why Entropic Communications (ENTR) Stock Is Up Today

NEW YORK (TheStreet) -- Entropic Communications (ENTR) was gaining 7.3% to $2.94 Tuesday after announcing it will explore strategic alternatives "to enhance shareholder value."

The chipmaker said it engaged Barclays (BCS) as it considers a wide range of alternatives available. The company did not specify what those alternatives might be.

Entropic Communications also lowered its third quarter guidance due to less seasonal strength in the Direct Broadcast Satellite Outdoor Unit business and weakness in legacy set-top box system-on-a-chip products. The company now expects revenue of about $43 million for the third quarter, and a non-GAAP loss of about 15 cents a share.

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The company expects more softness in the fourth quarter due to new product deployment delays.

TheStreet Ratings team rates ENTROPIC COMMUNICATIONS INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate ENTROPIC COMMUNICATIONS INC (ENTR) a SELL. This is driven by a few notable 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. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."

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

  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, ENTROPIC COMMUNICATIONS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$11.63 million or 347.70% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • ENTR'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 33.25%, 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.
  • The revenue fell significantly faster than the industry average of 10.2%. Since the same quarter one year prior, revenues fell by 28.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • ENTROPIC COMMUNICATIONS INC has improved earnings per share by 45.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ENTROPIC COMMUNICATIONS INC swung to a loss, reporting -$0.73 versus $0.04 in the prior year. This year, the market expects an improvement in earnings (-$0.45 versus -$0.73).
  • You can view the full analysis from the report here: ENTR Ratings Report

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