NEW YORK ( TheStreet) -- Websense (Nasdaq: WBSN) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and impressive record of earnings per share growth. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and generally poor debt management. Highlights from the ratings report include:
- The revenue growth came in higher than the industry average of 0.6%. Since the same quarter one year prior, revenues rose by 10.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- WEBSENSE INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, WEBSENSE INC turned its bottom line around by earning $0.43 versus -$0.24 in the prior year. This year, the market expects an improvement in earnings ($1.51 versus $0.43).
- The gross profit margin for WEBSENSE INC is currently very high, coming in at 90.60%. Regardless of WBSN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, WBSN's net profit margin of 4.80% is significantly lower than the same period one year prior.
- Despite currently having a low debt-to-equity ratio of 0.54, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.47 is very low and demonstrates very weak liquidity.
- Net operating cash flow has decreased to $9.15 million or 32.56% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.