U.S. Markets closed

Will Rosetta Stone's (RST) Earnings Surprise this Quarter?

Zacks Equity Research

Rosetta Stone Inc. (RST) is set to report second-quarter 2014 results on Aug 5. In the previous quarter, the company reported a loss of 78 cents, much wider than the Zacks Consensus Estimate of 29 cents. On an average, the company has delivered negative earnings surprise of 65.22% in the last four quarters.

Let’s see how things are shaping up for this quarter.

Growth Factors in the Past Quarter

We believe that Rosetta Stone’s expanding mobile product portfolio will boost top-line growth in the near term. The acquisitions of Tell Me More, Livemocha, Lexia Learning and Vivity Labs are expected to boost market share in the long run.  

However, Rosetta Stone’s premium priced subscription service faces significant competition from the likes of Fluenz, Living Language, Babbel, Mango and Duolingo which offer much cheaper (also free) products. This will continue to hurt Rosetta Stone’s top line and profitability, going forward.

Earnings Whispers?

Our proven model does not conclusively show that Rosetta stone is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Zacks ESP: Rosetta Stone currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 20 cents.

Zacks Rank: Rosetta Stone has a Zacks Rank #3 (Hold), which when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Cognizant Technology Solutions (CTSH), with an Earnings ESP of +5.08% and a Zacks Rank #1 (Strong Buy).

Super Micro Computer (SMCI), with an Earnings ESP of +2.78% and a Zacks Rank #1.

Semiconductor Manufacturing International Corp. (SMI), with an Earnings ESP of +33.33% and a Zacks Rank #2 (Buy).

Read the Full Research Report on RST
Read the Full Research Report on CTSH
Read the Full Research Report on SMI
Read the Full Research Report on SMCI

Zacks Investment Research