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"We rate ARADIGM CORP (ARDM) 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 robust 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."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 8.7%. Since the same quarter one year prior, revenues rose by 45.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- ARDM 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. Along with this, the company maintains a quick ratio of 8.81, which clearly demonstrates the ability to cover short-term cash needs.
- ARADIGM CORP reported significant earnings per share improvement 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, ARADIGM CORP reported poor results of -$2.40 versus -$1.60 in the prior year. This year, the market expects an improvement in earnings ($0.30 versus -$2.40).
- After a year of stock price fluctuations, the net result is that ARDM's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. 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 company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Pharmaceuticals industry and the overall market, ARADIGM CORP's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: ARDM Ratings Report
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