NEW YORK ( TheStreet) -- Rosetta Stone ( RST - Get Report) is delivering a muddled message to Wall Street these days, and investors might want to tune out on the stock until communication improves.

The shares tanked late last week after the Arlington, Va.-maker of language learning software products disappointed Wall Street by forecasting weaker than expected revenue growth and a surprise loss for the third quarter. As of Wednesday's close at $18.15, the shares had fallen more than 30% from near-term highs above $27 in mid-April and have pocket change to show for themselves since going public in April 2009 at $18 each.

The poor outlook was just the latest misfire for Rosetta Stone, and the pattern is raising concerns among analysts and investors about what kind of handle the company has on its business.

This is, of course, never a good thing to project to Wall Street, but in the case of Rosetta Stone, the timing is particularly bad. The company has announced two high-profile executive departures since June -- a potential red flag for internal problems -- and has a major product launch coming up in September.

"We had hoped the earnings call would provide better context and a more tangible strategic 'feeling' for what happens next in the U.S. consumer on the heels of the earnings revision in July, but in our view, investors are left with too many questions in the near term," said William Blair in a Aug. 6 note downgrading the stock to market perform.

Barrington Research also touched on the issue in late July when Rosetta Stone announced the departure of COO Eric Eichmann and gave a puzzling forecast for the second quarter, guiding for less revenue but a bigger profit than analysts were modeling for at the time. The firm said the company's explanations for a pattern of inaccurate outlooks were growing "increasingly convoluted."

This time around the company put the blame on higher rates for spot ads, which refers to advertising purchased close to the date of its appearance. While Rosetta Stone is making progress in its push into the international and institutional markets, the core of its business is still sales to the U.S. consumer, which supplied 41% of revenue in the second quarter. According to William Blair, spot ad rates have risen to more than double their normal levels since the first quarter, and the company's management "has no firm answer for when the trend will lapse."

With the cost going so high, Rosetta Stone opted to purchase fewer ads and has subsequently seen a sequential decline in sales. The lower marketing expenses helped the bottom line in the first and second quarters, but early in its life as a public entity, the company is at a stage when building sales momentum takes precedence.

What's more, judging by the outlook, the positive impact of the lower marketing spend has run its course, and the company expects to sink into the red next quarter. Its forecast for a non-GAAP loss of 2 to 9 cents a share for the September period on revenue of $60 million to $64 million was below most Wall Street expectations, which vary wildly. For example, William Blair was looking for earnings of 14 cents a share in the third quarter on revenue of $78.1 million, while Jefferies had been looking for a profit of a penny per share on revenue of $66 million.

Jefferies, which has a hold rating and a 12-month price target of $21 on the stock, broke down the company's outlook in its research note, saying the company's numbers imply a 12% year-over-year decline in consumer bookings for the third quarter followed by a 16% rebound in the fourth quarter on the same basis.

The outlook sets a high bar for the Sept. 14 release of the Rosetta Stone Version 4 TOTALe product, the latest version of the company's flagship language learning software product, and the firm is skeptical.

"While the 3Q numbers look very achievable to us, the 4Q numbers look like they need a lot to go right," Jefferies told clients. "Given execution missteps and management departures, the uncertainty is too high."

That sentiment -- too much uncertainty -- is the prevailing wisdom on Wall Street right now, and the stock looks to be dead money at best for the next few months. Seven of the nine analysts covering Rosetta Stone currently have hold ratings on the shares, according to Thomson Reuters data. That's a reversal of the view just three months ago when only two firms were at hold, and the other seven were at strong buy (6) or buy (1).

From a technical standpoint, the shares seem to be setting up to test support just below $17, according to L.A. Little, a senior contributor at TheStreet specializing in chart analysis.

He says the stock has been working lower since its IPO last year, and its inability to break through its highs this past April has set up a different scenario.

"If a stock can't break resistance, it usually ends up testing support," Little explains. "In this case, support is the lows and the high volume anchor bar from late February (see chart below). So far volume hasn't picked up sufficiently to move lower, but the real test is when the low of the anchor bar is tested at $16.95."

A break below support would of course be a bad sign.

If the shares hold at support and volume doesn't pick up, Little expects the stock would subsequently trade within the support level and resistance in the $24-$27 range.

He had this observation for those investors mulling either building or adding to a position in the stock.

"If you want to buy Rosetta Stone, wait for the test and measure the conviction of the sellers," Little says. "That's where you can put the odds in your favor with a tight stop below the lows."

Matt Kempler of Sidoti & Co. has a neutral rating (the equivalent of hold) on the stock and tweaked his 12-month price target $1 lower to $22 in the wake of the latest news. But he believes the risk/reward profile becomes favorable if the stock declines by roughly another 10% from here, and that the company is executing well in its institutional and international businesses.

He notes Rosetta Stone has about $5 in cash per share on the balance sheet, and says a drift down to the high teens has the stock trading at around 14 times his 2011 estimate for earnings of $1.22 a share, something it hasn't done since it sank to a 52-week low of $16.06 in November 2009. Kempler is concerned about the executive changes but is hesitant to conclude that they are indicative of a systemic problem.

"In the case of the CFO (Brian Helman), it looks like a personal decision," he told TheStreet in a phone interview. "As for the COO (Eric Eichmann), the role was changing, and they wanted to split up responsibility for international and U.S. sales, and it would seem that there was intense pressure related to managing the weakening U.S. business. So he appears to have decided to move on."

The loss of Helman is the bigger issue for Rosetta Stone in the near term. He has been with the company since 2007, bringing it through the IPO process, and his departure at the end of the month stretches CEO Tom Adams thin just as execution becomes of paramount importance with the new product release a month away.

In commentary accompanying its downgrade of the stock, William Blair said there's no indication the company is making progress on naming a replacement, and said the large role that Helman played on the company's conference call last week raises questions about "how deep the bench really is at the senior level."

A warm reception for the Version 4 TOTALe product would be a step in the right direction, and Sidoti's Kempler is bullish on the offering.

"This takes it to a new level," Kempler says. "It's no longer a pure software application. It adds online virtual tutoring and social networking." For disclosure purposes, Kempler notes that Sidoti hasn't received compensation from Rosetta Stone, or owned shares of the company in the past 12 months.

Those features and other improvements should help in the battles against the competition in the private sector, most notably Berlitz, although Rosetta Stone has differentiated itself as a software company targeting consumers, while Berlitz's customers are predominantly institutional and its focus is on classroom instruction.

For his part, Kempler especially likes what Rosetta Stone has done to beef up its own institutional business. He notes the sales force has grown by nearly 30% year-to-date, and that the company not only renewed and expanded its contract with NASA last quarter, it also was able to add several high-profile customers, including Apple ( AAPL), and Univision.

But until the advertising market improves, the company hires a new CFO, and evidence of a successful Version 4 launch begins to trickle in, Wall Street is likely to turn a deaf ear to Rosetta Stone's charms.

-- Written by Michael Baron in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.