NEW YORK ( TheStreet) -- China Distance Education Hldg Ltd-Shs Spons (NYSE: DL) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- 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 3.11, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for CHINA DISTANCE EDUCATION-ADR is rather high; currently it is at 50.80%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 4.70% trails the industry average.
- CHINA DISTANCE EDUCATION-ADR reported flat earnings per share in the most recent quarter. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse 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 ($0.20 versus -$0.05).
- 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 35.28%, which is also worse than the performance of the S&P 500 Index. 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.
- 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.