Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model 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 growth in earnings per share, increase in net income and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and generally higher debt management risk.
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- 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 increased its bottom line by earning $0.78 versus $0.43 in the prior year. This year, the market expects an improvement in earnings ($1.54 versus $0.78).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 80.9% when compared to the same quarter one year prior, rising from $4.38 million to $7.92 million.
- Net operating cash flow has slightly increased to $9.88 million or 7.92% when compared to the same quarter last year. Despite an increase in cash flow, WEBSENSE INC's cash flow growth rate is still lower than the industry average growth rate of 18.18%.
- WBSN's debt-to-equity ratio of 0.87 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.42 is very low and demonstrates very weak liquidity.
- WBSN'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 27.86%, 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.
-- Written by a member of TheStreet Ratings Staff