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Is Billionaire Marc Lasry Right on J.C. Penney?

Tickers in this article: JCP

NEW YORK (TheStreet) -- Traders who made money on J.C. Penney after Marc Lasry of Avenue Capital, a $12 billion hedge fund, spoke bullishly about the retailer at an investors' conference in Chicago in October were those who shorted the stock.

On Oct. 30, shares of J.C. Penney traded at $7.60. Now the stock is trading close to $7. With a short float of 29.59% (5% is considered to be troubling), many are betting that the shares will fall further. There are many reasons for the bearish outlook.

Sales growth is falling, the company is losing money and it has a high debt level with a debt-to-equity ratio of 2.12 to 1. It is difficult to see how its massive debt load won't become a crippling, if not fatal, problem for J.C. Penney.

The biggest concern, meanwhile, is shoppers don't want what J.C. Penney is selling.

The stock -- down almost 60% over the past year in a bull market -- fell 9% last Wednesday after the company failed to give a same-store sales figure for December, leading some to suspect that same-store sales were flat when an increase was expected.

Maxim Group analyst Rick Snyder has warned that unless store traffic increases, the company has no hope. In May, Maxim had upgraded J.C. Penney to buy with a target price of $27.

That is all part of J.C. Penney having the pitfalls of a classic value trap. The average return-on-equity for a retail store is 18.67%. For J.C. Penney, it is a negative 71.80%.

Lasry is not the only billionaire hedge fund manager who has been wrong about J.C. Penney. In August, Bill Ackman of Pershing Square Capital Management dumped his entire position of 39.1 million shares at $12.90. While he lost a great deal, it could have been worse as J.C. Penney's stock has fallen about 40% since.

Lasry cites the liquidity of J.C. Penney, which has $4.87 a share in cash. But it is tough to see how that number paints a bullish picture. In its last fiscal year ended Feb. 2, J.C. Penney lost $4.49 a share. For its current fiscal year ending this month, it is projected to lose $5.75 a share. That's hardly inspiring for the future.

Jonathan Yates does not have a position in the stock mentioned in this article.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.