NEW YORK (

TheStreet

)

-- K12

(NYSE:

LRN

) has been downgraded by TheStreet Ratings from buy to hold. 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 increase in net income. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:

  • The revenue growth greatly exceeded the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 43.3%. 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. To add to this, LRN has a quick ratio of 2.38, which demonstrates the ability of the company to cover short-term liquidity needs.
  • K12 INC 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, K12 INC reported lower earnings of $0.38 versus $0.72 in the prior year. This year, the market expects an improvement in earnings ($0.52 versus $0.38).
  • 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, K12 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 -$34.96 million or 622.48% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

K12 Inc., a technology-based education company, provides proprietary curriculum, software systems, and educational services for individualized learning for students in kindergarten through 12th grade (K12) primarily in the United States. The company has a P/E ratio of 57, below the average diversified services industry P/E ratio of 59.4 and above the S&P 500 P/E ratio of 17.7. K12 has a market cap of $906.6 million and is part of the

services

sector and

diversified services

industry. Shares are down 16.5% year to date as of the close of trading on Friday.

You can view the full

K12 Ratings Report

or get investment ideas from our

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