The firm said it lowered its rating on the technology based education company due to a lower volume of business and increased pressures in Pennsylvania which is reducing the amount of the company's outsourced resources.
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"We rate K12 INC (LRN) 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 revenue growth, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
TheStreet Ratings team rates K12 INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
- LRN's revenue growth has slightly outpaced the industry average of 2.6%. Since the same quarter one year prior, revenues slightly increased by 7.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- LRN's debt-to-equity ratio is very low at 0.07 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.20, which clearly demonstrates the ability to cover short-term cash needs.
- 46.01% is the gross profit margin for K12 INC which we consider to be strong. Regardless of LRN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LRN's net profit margin of 6.78% is significantly lower than the industry average.
- 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 Diversified Consumer Services industry and the overall market on the basis of return on equity, K12 INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
- LRN'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 25.05%, 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. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- You can view the full analysis from the report here: LRN Ratings Report