Sears Holdings (SHLD) is no stranger to declines, with SHLD stock down about 50% year-to-date in 2014 and off about 80% from 2010 highs.
But the pain is not over yet, with SHLD stock down by 7% in the past couple days thanks in large part to news that a Florida real estate firm is opting out of lifeline to Sears Holdings.
Fairholme Capital Management, a major SHLD stock holder, was in discussions to contribute $100 million in loans to Sears, according to a recent Dealbook report. But St. Joe Company didn’t like the terms and refused to partner with Fairholme on the credit line.
SHLD stock remains firmly in control of hedge fund manager Eddie Lampert, who also is the CEO of the company. Lampert’s ESL Investments actually proffered a separate $400 million loan to the unprofitable retailer earlier in September.
But after posting a loss of about $1 billion in the first half of this year alone, and with SHLD posting quarterly losses in 16 out of the last 17 quarters, there’s a dire need for capital to simply keep the lights on.
To add insult to injury, major shareholder Bruce Berkowitz reportedly just sold 26,400 shares, cutting down his Sears position by 3% — a sure sign of his lack of confidence if he’s selling SHLD stock at these depressed levels instead of waiting for a rebound.
With Sears revenue in a tailspin, the company still operating at a loss and continued signs of liquidity issues, it’s not a surprise that some pessimists are starting to talk about the very real prospects of a Sears bankruptcy.
However, while I certainly wouldn’t buy SHLD stock at these levels, I’m not prepared to count the battered retailer out just yet. Eddie Lampert has plenty of ego, and plenty of capital at his disposal to prop up an ailing Sears for some time.
That doesn’t guarantee SHLD will rebound. But it does mean shorting this stock could be a dangerous game, even despite all the bad headlines.
I’d simply sit out SHLD and watch the Dumpster fire burn.
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 email@example.com or follow him on Twitter via @JeffReevesIP.