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. TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates.
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 143,900 shares per day over the past 30 days. Town Sports International Holdings has a market cap of $203.2 million and is part of the leisure industry. Shares are down 43.3% year-to-date as of the close of trading on Friday. 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. In addition, TOWN SPORTS INTL HOLDINGS has also vastly surpassed the industry average cash flow growth rate of -78.76%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 4.8%. 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 13.18% 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.
- The revenue growth came in higher than the industry average of 10.4%. Since the same quarter one year prior, revenues rose by 12.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The gross profit margin for THL CREDIT INC is rather high; currently it is at 61.65%. Regardless of TCRD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, TCRD's net profit margin of 57.81% significantly outperformed against the industry.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, THL CREDIT INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, TCRD has underperformed the S&P 500 Index, declining 8.51% from its price level of one year ago. 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.
- Net operating cash flow has significantly decreased to -$66.97 million or 503.81% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full THL Credit Ratings Report.
- CTCM's debt-to-equity ratio is very low at 0.00 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 1.21, which illustrates the ability to avoid short-term cash problems.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Media industry and the overall market, CTC MEDIA INC's return on equity exceeds that of both the industry average and the S&P 500.
- CTCM, with its decline in revenue, slightly underperformed the industry average of 3.9%. Since the same quarter one year prior, revenues slightly dropped by 1.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 30.86%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 29.26% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- 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 Media industry. The net income has significantly decreased by 29.9% when compared to the same quarter one year ago, falling from $64.88 million to $45.50 million.
- You can view the full CTC Media Ratings Report.
- Our dividend calendar.