NEW YORK ( TheStreet) -- RealNetworks (Nasdaq: RNWK) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and feeble growth in the company's earnings per share.
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- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 1282.6% when compared to the same quarter one year prior, rising from -$6.85 million to $81.00 million.
- RNWK 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 3.34, which clearly demonstrates the ability to cover short-term cash needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market on the basis of return on equity, REALNETWORKS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- REALNETWORKS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, REALNETWORKS INC swung to a loss, reporting -$0.79 versus $0.24 in the prior year. For the next year, the market is expecting a contraction of 26.6% in earnings (-$1.00 versus -$0.79).
- RNWK'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 26.65%, 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. 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.
-- Written by a member of TheStreet Ratings Staff