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Why Rosetta Stone, Inc. Shares Dropped Today

By Steve Symington – Feb 25, 2014 at 5:22PM

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meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Rosetta Stone, Inc. (RST) fell more than 10% Tuesday morning, then partially recovered to close down around 4.4% after the company turned in disappointing fourth-quarter results.

So what: Quarterly revenue fell 1% year over year to $77.7 million, which translated to adjusted net income of $0.05 per share. Analysts, on average, were looking for adjusted earnings of $0.11 per share on sales of $82.41 million.

Now what: Even so, CEO Steve Swad pointed out while overall bookings remained flat in the face of declining North American retail sales, Rosetta Stone did manage to grow bookings for both its North American direct-to-consumer and Enterprise and Education channels by 7% and 47%, respectively. Swad also highlighted the company's December acquisitions of international language company Tell Me More, and Fit Brains creator Vivity Labs, both of which will serve to diversify Rosetta Stone's products and expand its global reach.

Even though Rosetta Stone may look expensive trading around 77 times this year's expected earnings, that's why I don't think investors should give up on the company just yet. Once the dust settles and Rosetta Stone manages to return to sustained GAAP profitability, the stock should still be able to reward patient shareholders over the long-term.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Rosetta Stone. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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