But now that JCPenney is seven months removed from the ouster of Ron Johnson and the return of Mike Ullman, things seem to have stabilized. JCP stock is actually up more than 30% from a 52-week low of $6.24 just a few weeks ago, and the retailer just reported that same-store sales increased in October by 0.9% — the first sales increase for JCP in almost two years.
The fact that these gains were made at Penney’s stores despite a generally weak consumer spending environment is encouraging. But even though JCP stock seemed to fight through the hangover of the government shutdown successfully, that’s no guarantee that this pick has any upside now that it has seen a bit of a bounce off the bottom.
JCP Stock is a Sell
It’s easy to spin JCP sales growth into a positive story. However, the broader challenges for JCPenney go deeper than simply finding 1% sales growth each month.
The biggest reason sales growth is possible is simply because the comps are so easy after JCP has crashed and burned. Consider that JCP did $17.2 billion in fiscal 2012 revenue but a bit less than $13 billion in its fiscal 2013 that ended in February — a decline of over 24% in sales.
A 0.9% increase in comps doesn’t sound so hot, now, does it?
The sales are only one side of the equation, too. JCP operated at a deep loss in the just-ended fiscal 2013, is projected to lose even more in fiscal 2014 and continue to bleed cash across all of fiscal 2015, too.
And with a credit rating deep into junk bond territory, borrowing cash to keep things operating doesn’t come cheap.
Speaking of borrowing, JCPenney also boasts about $3 billion in long-term debt already — a tally much bigger than its roughly $2.5 billion market cap — and total liabilities that tally $6.6 billion!
These are structural issues that will not go away overnight. And while it’s tempting to bargain hunt in JCP stock after a snap-back and a decent headline about same-store sales, investors should remember that the reason bankruptcy rumors have been flying around is simply because the company has big debts and small sales — a combination that is not easily remedied, and can end very badly for investors.
Don’t risk a buy in JCPenney stock right now. The retailer is simply too risky.
More on JCP Stock
- On JCPenney’s sales growth recently. (Fox Business)
- Alyssa Oursler says don’t believe the hype about online sales either. (InvestorPlace)
- One analyst has a $1 price target on JCP. (CNNMoney)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.