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) -- Changyou.com (Nasdaq: CYOU) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, increase in stock price during the past year, impressive record of earnings per share growth, compelling growth in net income and notable return on equity. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.
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- The revenue growth greatly exceeded the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 28.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- CHANGYOU.COM LTD has improved earnings per share by 18.1% 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. During the past fiscal year, CHANGYOU.COM LTD increased its bottom line by earning $4.61 versus $3.29 in the prior year. This year, the market expects an improvement in earnings ($5.25 versus $4.61).
- 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 17.8% when compared to the same quarter one year prior, going from $61.89 million to $72.93 million.
- 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 Software industry and the overall market, CHANGYOU.COM LTD's return on equity significantly exceeds that of both the industry average and the S&P 500.
-- Written by a member of TheStreet Ratings Staff