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) -- Demand Media (NYSE: DMD) 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 robust revenue growth. However, as a counter to these strengths, we find that the stock has experienced relatively poor performance when compared with the S&P 500 during the past year.
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- DEMAND MEDIA 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, DEMAND MEDIA INC turned its bottom line around by earning $0.07 versus -$0.23 in the prior year. This year, the market expects an improvement in earnings ($0.41 versus $0.07).
- 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 136.3% when compared to the same quarter one year prior, rising from -$1.84 million to $0.67 million.
- The gross profit margin for DEMAND MEDIA INC is rather high; currently it is at 56.10%. Regardless of DMD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DMD's net profit margin of 0.66% is significantly lower than the industry average.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Internet Software & Services industry and the overall market, DEMAND MEDIA INC's return on equity significantly trails that of both the industry average and the S&P 500.
-- Written by a member of TheStreet Ratings Staff