I rarely encourage people to use their own perception as an analytical tool. As a former debate champion, I despise introspective arguments. No one individual is an arbiter of any important issue. Yet when it comes to discussing Sears Holdings Corp. (NASDAQ:SHLD) and the sustainability of SHLD stock, I have one response. Please visit your local Sears store and tell me what you see.
The risk, of course, is that you are local to the only Sears store bustling with demand. But chances are, your experiences are like mine. Adjectives that float into my head when I visit the embattled brand are typically “sad,” “lonely” and “dirty.” What makes it worse is that the only Sears in my area is located in an extremely affluent area. How can I invest in SHLD stock when they can’t spruce up a store that former presidential candidate Mitt Romney might visit?
As I mentioned in my last write-up for Sears stock, I get why people took the plunge. At its peak, SHLD soared to a nearly 54% gain against the January opener. If you pulled a Harry Houdini, the trough-to-peak profit was a massive 160%. That was over the course of a mere two months. I can only imagine the riches accrued from speculative options trading.
But now, the fun is over. SHLD stock lost more than 10% last month. Since April 20, shares stumbled 32% in the markets. The besieged retailer is still up 1.6% year-to-date, an impressive haul considering the circumstances. That might give hope to speculators, or those who feel they missed the boat the first time around.
My idea? Please miss this boat again.
Sears Is Stuck to an Ugly market
Forget the fact that no analysts want to stick their necks out for SHLD stock, although it is a worry. Even the worst stinker has somebody pining for it. Look at J C Penney Company Inc (NYSE:JCP). Their market value has sunk 42% YTD. Why does anyone even pretend to like JCP? Yet, people are surprisingly bullish on its long-in-the-tooth recovery.
But even more critical than universal pessimism is that Sears stock is levered towards a declining industry. According to the U.S. Bureau of the Census, electronics and appliance stores — like Best Buy Co Inc (NYSE:BBY) — have been largely flat since the Great Recession. Best Buy gets a pass because people like going there. Obviously, Sears has no such luck.
But even worse, sales of appliance stores have sharply declined over the past two years. The Census reports that in March 2015, sales totaled $8.63 billion. In March of this year, the haul was $8.38 billion. A 3% loss may not seem like much. However, you have to consider that total retail sales excluding food services jumped 6.5% in the same time period.
When you think about it, SHLD stock is the worst of two worlds. On one hand, it’s exposed to an industry in recession. On the other, it’s one of the worst players in that specific game. And with Amazon.com, Inc. (NASDAQ:AMZN) offering everything except car batteries and tire services, Sears has no way of fighting back.
SHLD Stock Is Astonishingly Bad
Click to Enlarge If all the things that we’ve discussed didn’t settle matters, take a look at the five-year chart for Sears stock. It would take an exercise of extreme intellectual dishonesty to say anything positive about this trend. Nevertheless, the bullish argument here is that SHLD hit a bottom this year. This time, it really is different.
Really? How does this not look any different than all the other times SHLD stock supposedly hit a bottom? And why this year? To believe in the recovery is to assume that Sears has inspired confidence after bleeding out a mountain of cash.
The only logical option with Sears is to play the long and short of it. But that approach is strictly a gamble. I’m the first to admit I have no idea which way SHLD will turn tomorrow. It just might do another 50% run up.
Ultimately, however, you can only deny the fundamentals for so long. And Sears’ are truly ugly.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.