NEW YORK (TheStreet) -- Changyou.com (Nasdaq:CYOU) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.
Highlights from the ratings report include:
The revenue growth greatly exceeded the industry average of 2.0%. Since the same quarter one year prior, revenues rose by 35.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
CYOU 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 3.64, which clearly demonstrates the ability to cover short-term cash needs.
The gross profit margin for CHANGYOU.COM LTD -ADR is currently very high, coming in at 86.60%. Regardless of CYOU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CYOU's net profit margin of 51.60% significantly outperformed against the industry.
Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Software industry and the overall market, CHANGYOU.COM LTD -ADR's return on equity significantly exceeds that of both the industry average and the S&P 500.
Changyou.com Limited develops and operates online games in the People's Republic of China. The company has a P/E ratio of 10.4, above the average computer software & services industry P/E ratio of 9.6 and below the S&P 500 P/E ratio of 17.7. Changyou.com has a market cap of $1.9 billion and is part of the technology sector and computer software & services industry. Shares are up 26.7% year to date as of the close of trading on Tuesday.