1-Star Stocks Poised to Plunge: Zale?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, jewelry retailer Zale (NYSE: ZLC  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Zale's business and see what CAPS investors are saying about the stock right now.

Zalefacts

   
Headquarters (founded) Irving, Texas (1989)
Market Cap $205.9 million
Industry Specialty stores
Trailing-12-Month Revenue $1.9 billion
Management CEO Theophlius Killion (since 2010)
CFO Thomas Haubenstricker (since 2011)
Return on Capital (average, past 3 years) (28.3%)
Cash/Debt $24.6 million / $452.9 million
Competitors J.C. Penney
Signet Jewelers
Wal-Mart

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 59% of the 258 members who have rated Zale believe the stock will underperform the S&P 500 going forward.

Just this week, one of those bears, All-Star TSIF, tapped the stock's recent run-up as seemingly unsustainable:

May be near the end of a short squeeze after an analyst upgrade "caused" a short spike, followed by a computer trading spike, followed by a bigger short spike, followed by day traders checking in… [E]xpecting a retrace as a 52 week high for [Zale], despite somewhat better earnings the last quarter is not warranted. ... October earnings usually the lowest of the year.

Metrics look deceiving, but could be why [Zale] share price stays higher than warranted. ... [L]ittle if anything gets the bottom line in this highly competitive, economically dependent industry. Short term call, expect a slow bleed back down unless the economy buoys all ships.

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


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