Risk/Reward — JCP Stock
Nobody in their right mind would suggest placing your life savings in JCP stock. However, if you’ve got $10,000 to spare, I think JCPenney’s Q4 results provide enough good news to warrant serious consideration. The risk-to-reward proposition has probably never been greater than it is right now.
The last time JCP stock traded around $7 was back in the Reagan years — 1981 to be precise. JCPenney’s annual revenues back then were around $12 billion, almost identical to where they were in 2013.
As I pointed out prior to JCP stock releasing its Q4 earning,s there are several things it needs to do over the next 12-18 months in order for JCP stock to move higher. And, for most of those items, it’s doing a good job:
- The company is showing improvement in gross margins. In Q4 2013 they were 28.4% — 460 basis points higher than in Q4 2013
- Online sales are critical to the success of any retailer, and JCP’s online sales were $381 million — 26% higher than in the same period last year.
- It’s too early to tell how St. John’s Bay and other private label brands are doing, but CEO Mike Ullman did say in the conference call that JCP customers have been very enthusiastic about St. John’s Bay once again becoming an important part of the company’s offerings.
- JCP finished the year with total liquidity of $2.02 billion. If the turnaround is completed in 2014, JCP stock expects to generate positive free cash flow for the year. That’s very good news.
- While JCP delivered 2% positive comps in Q4, Sears Holdings (SHLD) was busy pulling negative comps of 6.4%. Any more improvement by JCP on a merchandising front will result in JCP stock taking market share from Sears.
No, things aren’t perfect. But Mike Ullman has JCPenney moving in the right direction. If that keeps up, JCP stock will eventually trade in double digits. Beyond that, with a little luck, it will be into the 20s by the middle of 2015. Pretty good prospects for a stock that seemed dead just a year ago.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.