J.C. Penney Survival Guide
What you can control is your decisions moving forward.
July represented more than a decline in share price for J.C. Penney's shareholders; it also destroyed hopes of a turnaround and quick path towards $20. Sorry, but the news doesn't get better, it gets worse.
Stocks making new 52-week lows are super-short-selling candidates. All else being equal, new 52-week lows, more often than not, continue declining. Bad news I know, but there are strategies you can employ to work through the fall and even turn a profit.
I'll discuss what you can do to minimize the bleeding if you're not ready to throw in the towel yet. First, let's look at the catalyst driving the price lower.
Last week, J.C. Penney shares went into a free fall after the New York Post ran an article alleging CIT
CIT offers J.C. Penney vendors credit through a process called "factoring." Factoring works this way: A vendor sells to J.C. Penney and instead of billing J.C. Penney and waiting 30 or more days to get paid, it receives maybe 98% of the invoiced amount from CIT right away. CIT invoices J.C. Penney for the merchandise, waits (and hopes) to get paid and profits from the difference.
If CIT believes J.C. Penney may not pay its bills, CIT will inform vendors they will not receive immediate payment and vendors will stop shipping merchandise. J.C. Penney can't sell from an empty apple cart, and the situation can spiral into a fast self-feeding panic among vendors.
J.C. Penney was quick to deny the rumor and stated "that a news report which appeared yesterday is untrue and that it has been told so directly by CIT, the subject of that report."
It's standard procedure for companies to "deny, deny, deny" problems; otherwise, the wheels can quickly fall off the cart. In J.C. Penney's case, it's more than reasonable to believe the company's rebuttal because unless it is burning through cash at a much greater rate than anyone would guess possible, it has more than enough credit lines available to pay the bills.