NEW YORK ( TheStreet) -- Changyou.com (Nasdaq: CYOU) has been downgraded by TheStreet Ratings from hold to sell. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself. Highlights from the ratings report include:
- CYOU'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 31.96%, 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. 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.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Software industry and the overall market, CHANGYOU.COM LTD -ADR's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The net income growth 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 increased by 16.6% when compared to the same quarter one year prior, going from $45.29 million to $52.81 million.
- The gross profit margin for CHANGYOU.COM LTD -ADR is currently very high, coming in at 84.80%. Regardless of CYOU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CYOU's net profit margin of 44.40% significantly outperformed against the industry.
- CYOU 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 3.79, which clearly demonstrates the ability to cover short-term cash needs.