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 10.10%. 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 37.29. The average volume for Town Sports International Holdings has been 174,800 shares per day over the past 30 days. Town Sports International Holdings has a market cap of $153.9 million and is part of the leisure industry. Shares are down 58.3% year-to-date as of the close of trading on Thursday. TheStreet Ratings rates Town Sports International Holdings as a hold. The company's strongest point has been its expanding profit margins. At the same time, however, we also find weaknesses including deteriorating net income, weak operating cash flow and feeble growth in the company's earnings per share. Highlights from the ratings report include:
- 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 2.7%. 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 42.33%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 183.33% 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.
- TOWN SPORTS INTL HOLDINGS has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Stable earnings per share over the past year indicate the company has managed its earnings and share float. We anticipate this stability to falter in the coming year and, in turn, the company to deliver lower earnings per share than prior full year. During the past fiscal year, TOWN SPORTS INTL HOLDINGS's EPS of $0.50 remained unchanged from the prior years' EPS of $0.50. For the next year, the market is expecting a contraction of 118.0% in earnings (-$0.09 versus $0.50).
- The gross profit margin for TOWN SPORTS INTL HOLDINGS is rather low; currently it is at 18.75%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.03% is significantly below that of the industry average.
- Net operating cash flow has decreased to $14.40 million or 33.85% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full Town Sports International Holdings Ratings Report.
- The revenue growth greatly exceeded the industry average of 3.1%. Since the same quarter one year prior, revenues rose by 33.5%. 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.
- Net operating cash flow has significantly increased by 96.18% to $39.63 million when compared to the same quarter last year. In addition, LEGACY RESERVES LP has also vastly surpassed the industry average cash flow growth rate of 16.30%.
- LEGACY RESERVES LP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, LEGACY RESERVES LP swung to a loss, reporting -$0.62 versus $1.43 in the prior year. This year, the market expects an improvement in earnings ($1.13 versus -$0.62).
- 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 Oil, Gas & Consumable Fuels industry and the overall market, LEGACY RESERVES LP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for LEGACY RESERVES LP is currently extremely low, coming in at 11.32%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -37.04% is significantly below that of the industry average.
- You can view the full Legacy Reserves Ratings Report.
- Net operating cash flow has significantly increased by 1117.59% to $18.28 million when compared to the same quarter last year. In addition, FULL CIRCLE CAPITAL CORP has also vastly surpassed the industry average cash flow growth rate of 162.25%.
- FULL CIRCLE CAPITAL CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, FULL CIRCLE CAPITAL CORP increased its bottom line by earning $0.52 versus $0.44 in the prior year. This year, the market expects an improvement in earnings ($0.73 versus $0.52).
- FULL, with its decline in revenue, underperformed when compared the industry average of 5.1%. Since the same quarter one year prior, revenues fell by 27.1%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, FULL CIRCLE CAPITAL CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- 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 Capital Markets industry. The net income has significantly decreased by 185.0% when compared to the same quarter one year ago, falling from -$0.43 million to -$1.22 million.
- You can view the full Full Circle Capital Ratings Report.
- Our dividend calendar.