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." ATA (NASDAQ: ATAI) shares currently have a dividend yield of 8.40%. ATA Inc., together with its subsidiaries, provides computer-based testing services in the People's Republic of China. The company has a P/E ratio of 23.20. The average volume for ATA has been 17,700 shares per day over the past 30 days. ATA has a market cap of $106.9 million and is part of the diversified services industry. Shares are up 16% year-to-date as of the close of trading on Monday. TheStreet Ratings rates ATA as a hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income and relatively poor performance when compared with the S&P 500 during the past year. Highlights from the ratings report include:
- ATAI has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.96, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for ATA INC -ADS is rather high; currently it is at 58.58%. 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 -29.03% is in-line with the industry average.
- In its most recent trading session, ATAI has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
- 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 Diversified Consumer Services industry. The net income has significantly decreased by 139.9% when compared to the same quarter one year ago, falling from -$0.97 million to -$2.33 million.
- You can view the full ATA Ratings Report.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 81.6% when compared to the same quarter one year prior, rising from $3.51 million to $6.37 million.
- The gross profit margin for WHITEHORSE FINANCE INC is rather high; currently it is at 64.79%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 77.21% significantly outperformed against the industry average.
- When compared to other companies in the Capital Markets industry and the overall market, WHITEHORSE FINANCE INC's return on equity is below that of both the industry average and the S&P 500.
- WHF has underperformed the S&P 500 Index, declining 5.25% 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 -$36.94 million or 106.76% 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 WhiteHorse Finance Ratings Report.
- Despite its growing revenue, the company underperformed as compared with the industry average of 12.1%. Since the same quarter one year prior, revenues slightly increased by 5.8%. 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 511.38% to $1.01 million when compared to the same quarter last year. In addition, EDUCATIONAL DEVELOPMENT CORP has also vastly surpassed the industry average cash flow growth rate of -43.07%.
- EDUC has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.88 is somewhat weak and could be cause for future problems.
- 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 Distributors industry. The net income has significantly decreased by 48.3% when compared to the same quarter one year ago, falling from -$0.21 million to -$0.31 million.
- 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 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 Ratings Report.
- Our dividend calendar.