Perilous Reversal Stock: Zale Corporation (ZLC)

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 $13.1 million.
  • ZLC has traded 1.9 million shares today.
  • ZLC is down 3.2% today.
  • ZLC was up 15.5% 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. The company operates through three segments: Fine Jewelry, Kiosk Jewelry, and All Other. ZLC has a PE ratio of 65.9. Currently there is 1 analyst that rates Zale Corporation a buy, no analysts rate it a sell, and 2 rate it a hold.

The average volume for Zale Corporation has been 921,200 shares per day over the past 30 days. Zale has a market cap of $518.1 million and is part of the services sector and specialty retail industry. The stock has a beta of 2.22 and a short float of 7.8% with 2.28 days to cover. Shares are up 284.7% year-to-date as of the close of trading on Wednesday.

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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 growth in earnings per share, revenue growth and expanding profit margins. 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:
  • ZALE CORP has improved earnings per share by 5.7% 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 turned its bottom line around by earning $0.02 versus -$0.96 in the prior year. This year, the market expects an improvement in earnings ($0.50 versus $0.02).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.7%. Since the same quarter one year prior, revenues slightly increased by 1.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The gross profit margin for ZALE CORP is rather high; currently it is at 53.44%. 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 -7.53% is in-line with the industry average.
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Specialty Retail industry average. The net income increased by 3.4% when compared to the same quarter one year prior, going from -$28.27 million to -$27.31 million.
  • The debt-to-equity ratio is very high at 3.31 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.

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