Rosetta Stone Shares Lack 'Near-Term Catalyst'

In a new report, analysts at Barrington Research took an in-depth look at Rosetta Stone Inc RST following the company's Q1 earnings results. Analysts call the Q1 performance "mixed" after earnings topped their expectations, but EBITDA and bookings came in below forecasts.

Soft Guidance

Management's 2015 bookings guidance of $232-260 million represents a 20 percent decline from 2014. "We would note management's tone around guidance did not exude confidence – for instance, it is no longer providing quarterly guidance," analysts explain in the report. Barrington is not surprised by the lack of clarity given the major transition that the company is currently undergoing.

Related Link: Rosetta Stone Reports Q1 EPS $0.95 Vs. Est. $0.69

Transition strategy

• 1. Streamline its Consumer channel
• 2. Accelerate the growth of its Enterprise and Education (E&E) segment by focusing on building an effective sales model and delivering strong products
• 3. Simplify is business and reduce expenses

Analysts praise the company for its clean, accelerated execution of this transition.

Rating Cut

Despite the strong strategy for moving forward, analysts see a lack of near-term positive catalysts for the stock. In addition, forex headwinds, the uncertainty and distraction of the CEO search process and low investor sentiment will continue to weigh on Rosetta Stone for the time being.

Barrington sees little downside remaining for the stock from its current levels, but without any positive catalysts coming anytime soon, it reduced its rating on the stock to Market Perform. Analysts like the long-term opportunity that the stock presents and will continue to look for upgrade opportunities in coming months.