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Trade-Ideas: Zale Corporation (ZLC) Is Today's "Perilous Reversal" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Zale Corporation ( ZLC) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Zale Corporation as such a stock due to the following factors:

  • ZLC has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $13.6 million.
  • ZLC has traded 7.2 million shares today.
  • ZLC is down 3.3% today.
  • ZLC was up 29.8% yesterday.

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More details on ZLC:

Zale Corporation, together with its subsidiaries, operates as a specialty retailer of fine jewelry in North America. Currently there are 3 analysts that rate Zale Corporation a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for Zale Corporation has been 779,000 shares per day over the past 30 days. Zale has a market cap of $304.0 million and is part of the services sector and specialty retail industry. The stock has a beta of 2.84 and a short float of 9.2% with 1.87 days to cover. Shares are up 118% year to date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Zale Corporation as a hold. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.

Highlights from the ratings report include:

  • Powered by its strong earnings growth of 192.85% and other important driving factors, this stock has surged by 137.17% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • ZALE CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ZALE CORP continued to lose money by earning -$0.96 versus -$3.62 in the prior year. This year, the market expects an improvement in earnings ($0.17 versus -$0.96).
  • The gross profit margin for ZALE CORP is rather high; currently it is at 52.60%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.14% trails the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, ZALE CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio is very high at 2.36 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.

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