Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model NEW YORK ( TheStreet) -- Zale Corporation (NYSE: ZLC) has been upgraded by TheStreet Ratings from sell to 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.
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- Powered by its strong earnings growth of 40.19% and other important driving factors, this stock has surged by 37.47% 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 has improved earnings per share by 40.2% 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 ($0.32 versus -$0.96).
- The gross profit margin for ZALE CORP is rather high; currently it is at 51.60%. 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 -4.90% is in-line with 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 2.53 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
-- Written by a member of TheStreet Ratings Staff