While plenty of high-yield opportunities exist, investors must always consider the safety of their dividend and the total return potential of their investment. It is not uncommon for a struggling company to suspend high-yielding dividends which could subsequently result in precipitous share price declines.
TheStreet Ratings' stock rating model views dividends favorably, but not so much that other factors are disregarded. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e. how much one is willing to risk in order to earn profits?; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to its stock's performance.
These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. As always, stock ratings should not be treated as gospel — rather, use them as a starting point for your own research.
The following pages contain our analysis of 3 stocks with substantial yields, that ultimately, we have rated "Hold." Town Sports International Holdings (NASDAQ: CLUB) shares currently have a dividend yield of 7.60%. Town Sports International Holdings, Inc., together with its subsidiaries, owns and operates fitness clubs in the Northeast and Mid-Atlantic regions of the United States. The company has a P/E ratio of 17.98. The average volume for Town Sports International Holdings has been 151,200 shares per day over the past 30 days. Town Sports International Holdings has a market cap of $204.9 million and is part of the leisure industry. Shares are down 42.8% year-to-date as of the close of trading on Wednesday. TheStreet Ratings rates Town Sports International Holdings as a hold. Among the primary strengths of the company is its generally strong cash flow from operations. At the same time, however, we also find weaknesses including unimpressive growth in net income, poor profit margins and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- Net operating cash flow has slightly increased to $16.91 million or 4.97% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -31.17%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.8%. Since the same quarter one year prior, revenues slightly dropped by 0.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The share price of TOWN SPORTS INTL HOLDINGS has not done very well: it is down 13.69% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 53.4% when compared to the same quarter one year ago, falling from -$0.45 million to -$0.70 million.
- The gross profit margin for TOWN SPORTS INTL HOLDINGS is rather low; currently it is at 21.89%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -0.61% is significantly below that of the industry average.
- You can view the full Town Sports International Holdings Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 11.0%. Since the same quarter one year prior, revenues slightly increased by 8.1%. 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 EDUCATIONAL DEVELOPMENT CORP is rather high; currently it is at 61.24%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 6.44% is above that of the industry average.
- The net income growth from the same quarter one year ago has exceeded that of the Distributors industry average, but is less than that of the S&P 500. The net income increased by 4.2% when compared to the same quarter one year prior, going from $0.53 million to $0.55 million.
- EDUC has underperformed the S&P 500 Index, declining 5.28% from its price level of one year ago. Looking ahead, other than the push or pull of the broad market, we do not see anything in the company's numbers that may help reverse the decline experienced over the past 12 months. Despite the past decline, the stock is still selling for more than most others in its industry.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Distributors industry and the overall market, EDUCATIONAL DEVELOPMENT CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Educational Development Corporation Ratings Report.
- INTX's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.48, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for INTERSECTIONS INC is rather high; currently it is at 66.46%. Regardless of INTX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, INTX's net profit margin of 0.16% compares favorably to the industry average.
- Net operating cash flow has decreased to $5.68 million or 45.01% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Commercial Services & Supplies industry and the overall market, INTERSECTIONS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full Intersections Ratings Report.
- Our dividend calendar.