RealD Inc. Stock Upgraded (RLD)

NEW YORK ( TheStreet) -- RealD (NYSE: RLD) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including premium valuation, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • REALD 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 year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, REALD INC continued to lose money by earning -$0.16 versus -$0.37 in the prior year. This year, the market expects an improvement in earnings ($0.48 versus -$0.16).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electronic Equipment, Instruments & Components industry. The net income increased by 117.1% when compared to the same quarter one year prior, rising from -$16.59 million to $2.83 million.
  • RLD, with its decline in revenue, underperformed when compared the industry average of 6.3%. Since the same quarter one year prior, revenues fell by 15.2%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • RLD'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 55.32%, 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.
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RealD Inc., together with its subsidiaries, licenses stereoscopic 3D technologies in the United States, Canada, and internationally. The company has a P/E ratio of 18.5, below the average media industry P/E ratio of 29.7 and above the S&P 500 P/E ratio of 17.7. RealD has a market cap of $485.7 million and is part of the services sector and media industry. Shares are up 60.5% year to date as of the close of trading on Monday.

You can view the full RealD Ratings Report or get investment ideas from our investment research center.
-- Written by a member of TheStreet RatingsStaff
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