It looks as though Renaissance Learning (NASDAQ:RLRN) needs to go back to school. For the fourth straight quarter (and sixth out of the last nine), this provider of educational software and learning-enhancement programs has seen revenue decline on a year-over-year basis.

Investors in Renaissance have gotten a bit of a schooling themselves as these shares have declined almost 45% over the past year and are down more than two-thirds from their all-time high.

For the fourth quarter, sales dipped 18% to $25.8 million, and net income dropped 32% to $5.2 million. If there is any good news to be found in the financials, it's that inventory levels (which had been growing at a rate far above sales) seem to have stopped going up for the time being.

Although the company said that it added 300 new customers in the quarter (bringing the total to more than 67,000), those new customers didn't provide much juice, since sales actually slipped about $300,000 sequentially. What's more, if taken at face value, that total of 67,000 customers means that the average customer is contributing less than $400 a quarter in revenue. While the company continues to talk about growing interest in its programs and increasing inquiries, this Fool doesn't see much value in adding too many more $400/quarter customers.

While schools might not be seeing much use for Renaissance, Fools can garner a couple of lessons here. First, seeing inventory consistently grow far beyond sales is not good. Those who noticed this red flag and sold could have recouped more than $20 a share even as late as early October.

Secondly, high margins and high returns on equity don't always promise quality. Despite a net margin in excess of 20% and a return on equity of almost 27% for 2004, those numbers must be viewed in context. Namely, the context that sales are dropping and that shareholder equity actually declined by 36% over that same period.

Even with a precipitous decline, the shares still trade at 22 times trailing earnings and more than 4 times sales. While those levels may not be out of line for a quality growth stock, Renaissance is starting to look like neither. What's more, Renaissance is spending $57 million (in a combination of cash and stock) to purchase Alphasmart (NASDAQ:ALSM) -- a company in the same business that is also suffering sales declines.

Though it's not too late to turn this business around, I can't see a reason to buy in anticipation of that without any actual signs of growth. Other Fools may see value here, but to me this stock deserves a failing grade.

Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned.