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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.  TheStreet Ratings quantitative algorithm evaluates over 4,300 stocks on a daily basis by 32 different data factors and assigns a unique buy, sell, or hold recommendation on each stock.  Click here to learn more.

NEW YORK (TheStreet) -- Changyou.com (CYOU) - Get Changyou.com Ltd. Report has been upgraded by TheStreet Ratings from Hold to Buy with a ratings score of B-.  TheStreet Ratings Team has this to say about their recommendation:

"We rate CHANGYOU.COM LTD (CYOU) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. 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 expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

TheStreet Recommends

  • CYOU's revenue growth has slightly outpaced the industry average of 8.3%. Since the same quarter one year prior, revenues rose by 10.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.42, 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 3.12 is very high and demonstrates very strong liquidity.
  • CHANGYOU.COM LTD has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, CHANGYOU.COM LTD swung to a loss, reporting -$0.06 versus $5.03 in the prior year. This year, the market expects an improvement in earnings ($1.99 versus -$0.06).
  • The gross profit margin for CHANGYOU.COM LTD is rather high; currently it is at 68.17%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, CYOU's net profit margin of 5.04% is significantly lower than the industry average.
  • The share price of CHANGYOU.COM LTD has not done very well: it is down 19.34% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • You can view the full analysis from the report here: CYOU Ratings Report