J.C. Penney Selfie Is Nothing to Get Excited About
NEW YORK ( TheStreet) -- One of the many "delights" of online dating is how a minor feature is overemphasized to cloak major weaknesses. If a profile has "good cook" with "great sense of humor" who "dances well," it could be an attempt to divert attention from a deal breaker (a current picture). This is the best explanation for the recent run-up in the share price of J.C. Penney
Over the last month of market action, J.C. Penney is up more than 45%.
What has J.C. Penney stock dancing so well is the announcement that it is relaunching its home goods section along with it posting a profit for the fourth quarter. Making it unattractive is that the " profit" is from a one-time tax benefit and property sale along with negative sales growth (-2.60%), negative profit margin (-11.60%) and a high debt load (2.12 debt-to-equity ratio in an industry where the average is 0.85) that is not going anywhere; all appear to be permanent flaws.
Also around for the long term is competition from Amazon
It was a one-time event that took RadioShack up double digits in a single day, too. That event was a clever commercial during the Super Bowl. The Friday before the Super Bowl, Jan. 31, RadioShack closed at $2.40. On Monday, Feb. 3, it hit a high of $2.68. RadioShack is now at $2.24, thanks to the negative sales growth, negative profit margin, high debt load and crushing competition -- the same negatives faced by J.C. Penney and other retailers, such as Bon-Ton Stores
The next time these one-time events cook up the share price of Bon-Ton Stores, J.C. Penney, RadioShack or Sears, go short, if you can find shares (good luck with that, as all have high short floats). If you are holding a long position, do what billionaire hedge fund managers Bill Ackerman and George Soros did with J.C. Penney: Sell. Take the loss if you have to, like Ackerman and Soros, but get out when the opportunity presents itself.
The recent bankruptcies of fast-food chains Sbarros and Quiznos provide the real-time lesson. A major reason cited is what makes retailers such as J.C. Penney and Sears so unattractive: Declining shopper traffic at malls.
There is no need to engage in a philosophical debate as to what came first -- the falling number of customers at the malls or the collapsing retail store. Rather attribute much of that change in the evolving shopping habits of Americans, who favor Amazon and eBay.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.