NEW YORK ( TheStreet) -- China Distance Education Hldg Ltd-Shs Spons (NYSE: DL) has been upgraded by TheStreet Ratings from sell 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 and a generally disappointing performance in the stock itself. Highlights from the ratings report include:
- 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, CHINA DISTANCE EDUCATION-ADR's return on equity significantly trails that of both the industry average and the S&P 500.
- DL'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 31.98%, 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. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- CHINA DISTANCE EDUCATION-ADR has improved earnings per share by 25.0% 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, CHINA DISTANCE EDUCATION-ADR swung to a loss, reporting -$0.05 versus $0.04 in the prior year. This year, the market expects an improvement in earnings ($0.19 versus -$0.05).
- DL 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 3.32, which clearly demonstrates the ability to cover short-term cash needs.
- The revenue growth greatly exceeded the industry average of 10.8%. Since the same quarter one year prior, revenues rose by 40.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.