Even Student Transportation Inc.’s (NSDQ: STB, TSE: STB) high yield may no longer be enough to keep subscribers from sending this legacy Conservative Holding to the principal’s office.

We’ve already heard from several of you who are understandably concerned about the stock’s largely inexplicable swoon since mid February.

Shares of Student Transportation—the third-largest school bus company in North America—hit a five-year closing high on February 13, at CAD7.44 per share, and they’ve since fallen by 17.6%.

Of course, the fact that the stock hit a long-term high as recently as February might be news to many subscribers. That’s because the decline in the Canadian dollar means the stock’s five-year high in U.S. dollar terms occurred more than three years ago.

But even with the falling exchange rate, Student Transportation’s U.S. listing managed to trade in a fairly narrow range for most of the two-year period covering the beginning of 2013 through the end of 2014.

That’s a testament to the extraordinary appeal of the stock’s high yield, which ranged from around 7.6% to 8.6% during that period.

Now that shares have been beaten down, the yield is even higher—recently at 9.1%—but the stock can’t seem to catch a bid, though it appears to be in the process of bottoming over the past week.

Echoes of Yellow Media?

One subscriber wondered whether Student Transportation could be another Yellow Media, a former income trust that was a recommendation of this service’s founding editor before its ultimate crackup.

That company was a high-yield darling during Canada’s income-trust craze, but then took on too much debt in a failed bid to reinvent itself for the digital age—its principal business was publishing the Yellow Pages directories, a sunset industry if ever there was one.

Canadian Edge finally bailed out of the stock in August 2011, and thereafter the value of existing shareholders’ equity essentially dropped to zero amid a restructuring that favored the firm’s creditors.

Memories of Yellow Media are not only painful, they also serve as a rhetorical cudgel that longtime subscribers invoke when wondering whether another troubled holding might meet its same fate.

At this point, we don’t see that happening to Student Transportation, though superstitious subscribers might see an ill portent in the fact that it was originally added to the portfolio as Yellow Media’s replacement.

So what’s been going on with this stock?

Well, it’s important to remember that with a current market cap of $473 million, Student Transportation remains toward the lower end of the small-cap spectrum. And with the vast majority of its float dominated by income-hungry retail investors—institutions hold just 22.6% of total shares outstanding—sour sentiment can easily depress the share price.

Admittedly, it’s not entirely clear what’s driving this sentiment.

Though expectations of a forthcoming rate hike by the U.S. Federal Reserve have sparked a correction in some dividend stocks, such as utilities, Student Transportation’s high yield is well beyond what surging Treasury yields can offer.

But traders can sometimes mete out punishment indiscriminately. High-yielding Canadian real estate investment trusts (REITs), for instance, are down 6.3% on a price basis in local currency terms since Student Transportation began its decline.

At the same time, other big yielders, such as business development companies, have more or less treaded water since then. That fact, along with the magnitude of Student Transportation’s decline, suggests that a Fed-induced rotation away from dividend stocks is, at worst, just a contributing factor to the selloff.

And while it’s not unusual for profit-taking to occur after a stock hits a long-term high, such as the one that occurred in mid February, Student Transportation’s shares now trade at 6.6% below their trailing five-year average. That means Canadian shareholders, whose positions in the stock aren’t suffering from currency depreciation, aren’t just simply booking gains.

Some U.S. Shareholders Bail

The exchange rate did briefly touch a five-year low in mid March, near USD0.78, which appears to have caused some selling pressure from U.S. shareholders who finally threw in the towel.

But most of the damage the stock has sustained occurred afterward, a period during which the loonie enjoyed a moderate rally. The currency has since drifted lower again, though the exchange rate remains slightly above where it was in mid February.

Student Transportation has occasionally faced spikes in short interest, especially when opportunistic investment advisers have attempted to gin up interest in their services by repeatedly targeting the stock with ultra-bearish reports on Web sites such as Seeking Alpha. That activity has quieted down over the past year or so.

And the number of shares held short last peaked in February and has fallen dramatically through mid May (the last date for which we have data), by about 25% for the U.S. listing and almost 50% for the Canadian listing.

Of course, we still haven’t addressed the stock’s underlying fundamentals. On that score, Student Transportation appears to be more or less trucking along. Adjusted EBITDA (earnings before interest, taxation, depreciation and amortization), management’s preferred profit metric since the business has significant non-cash expenses, particularly depreciation, grew by 16.5% and 20.3% year-over-year during its two most recent quarters.

New Contracts

The company continues to win contracts from new customers, while its margins have benefited from lower fuel prices thanks to the collapse in crude oil prices.

Analyst sentiment, while hardly exuberant, has largely held steady during this period, at two “buys,” three “holds” and one “sell.”

Management has taken advantage of historically low interest rates to pursue a growth-via-acquisition strategy of consolidating its highly fragmented industry.

Though borrowing has risen sharply over the past five years, debt remains manageable, and the company recently pared its long-term debt by about 22%, to CAD291.3 million.

Its method for doing so, however, raises another concern for shareholders: dilution.

The current interest rate environment has also been advantageous for high yielders making secondary equity issuances. And Student Transportation has been no slouch on that front.

The company issued another 12 million shares in early March, bringing basic shares outstanding to 95.9 million, up 74% over the past five years.

This latest offering may, in fact, be the culprit behind the stock’s decline, as the market seems less willing to absorb the extra supply than it has in the past.

Caution Dictates a Hold

As investors contemplate rising rates, they may be eyeing management’s roll-up strategy with greater skepticism. After all, it has yet to translate into enduring growth in earnings per share.

The company is pursuing organic growth initiatives, such as transitioning to a non-asset model, whereby it manages and operates bus fleets, while shifting the burden of ownership back to school districts. But it remains to be seen to what extent these efforts prove successful.

And with the absence of substantive news about the stock’s selloff, prudence dictates caution. Student Transportation is now a Hold.