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"We rate EMULEX CORP (ELX) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, good cash flow from operations and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself."
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Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 80.3% when compared to the same quarter one year prior, rising from -$3.64 million to -$0.72 million.
- Net operating cash flow has significantly increased by 319.52% to $20.85 million when compared to the same quarter last year. In addition, EMULEX CORP has also vastly surpassed the industry average cash flow growth rate of -31.96%.
- Despite currently having a low debt-to-equity ratio of 0.32, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.80 is very high and demonstrates very strong liquidity.
- ELX'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 28.32%, 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 company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Communications Equipment industry and the overall market, EMULEX CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: ELX Ratings Report