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 expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and weak operating cash flow.

Highlights from the ratings report include:
  • WBSN's revenue growth trails the industry average of 13.7%. Since the same quarter one year prior, revenues slightly increased by 1.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Software industry and the overall market, WEBSENSE INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • WEBSENSE INC has exprienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. 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, WEBSENSE INC increased its bottom line by earning $0.78 versus $0.43 in the prior year. This year, the market expects an improvement in earnings ($1.56 versus $0.78).
  • Net operating cash flow has decreased to $22.36 million or 28.82% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The share price of WEBSENSE INC has not done very well: it is down 18.90% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
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Websense, Inc. provides Web, email, and data security solutions to protect an organization's data and users from cyber-threats, malware attacks, information leaks, legal liability, and productivity loss worldwide. The company has a P/E ratio of 26.8, equal to the average diversified services industry P/E ratio and above the S&P 500 P/E ratio of 17.7. Websense has a market cap of $765 million and is part of the services sector and diversified services industry. Shares are up 8.8% year to date as of the close of trading on Wednesday.

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

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