NEW YORK ( TheStreet) -- Renaissance Learning (Nasdaq: RLRN) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself and unimpressive growth in net income.

Highlights from the ratings report include:
  • RENAISSANCE LEARNING INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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, RENAISSANCE LEARNING INC increased its bottom line by earning $0.82 versus $0.68 in the prior year. This year, the market expects an improvement in earnings ($0.84 versus $0.82).
  • RLRN 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. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.29 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The gross profit margin for RENAISSANCE LEARNING INC is currently very high, coming in at 79.90%. Regardless of RLRN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, RLRN's net profit margin of 16.40% is significantly lower than the same period one year prior.
  • The change in net income from the same quarter one year ago has exceeded that of the Software industry average, but is less than that of the S&P 500. The net income has decreased by 5.0% when compared to the same quarter one year ago, dropping from $5.78 million to $5.49 million.
  • Looking at the price performance of RLRN's shares over the past 12 months, there is not much good news to report: the stock is down 25.59%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

Renaissance Learning, Inc. provides computer-based assessment and periodic progress monitoring technology for pre-kindergarten through senior high schools and districts in the United States and internationally. The company has a P/E ratio of 13.9, equal to the average computer software & services industry P/E ratio and below the S&P 500 P/E ratio of 16.4. Renaissance Learning has a market cap of $333.6 million and is part of the technology sector and computer software & services industry. Shares are down 3.8% year to date as of the close of trading on Wednesday.

You can view the full Renaissance Learning Ratings Report or get investment ideas from our investment research center.
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