As a financial analyst, I consider Sears Holdings Corp (NASDAQ:SHLD) a “LeBron James” stock. Like James dunking on some fool, an analysis on SHLD stock writes itself. It’s automatic.
Still, a job has to be done, so let’s go over the reasons why Sears is such a no-brainer sell.
When analysts discuss the embattled retail sector in the passive, ambiguous voice, rest assured that they mean Sears. They are talking about Sears. They’re thinking about empty Sears stores and Sears location closures, like the additional 66 shutterings a source revealed yesterday. This is a company that is first to mind when it comes to retail bearishness.
If you’re a bullish speculator, joy is often short-lived. For instance, on April 19, I stated that the rally in SHLD stock was “pure fantasy.” The next day, Sears lost a little more than 2%, and it has been a bloodbath ever since. I further confirmed the ugliness by going for the double. On May 12 — which was a Friday — I cautioned people to get out. The following Monday, Sears stock dropped by more than 12%.
Shall we make it three in a row?
Lampert Has Lost It
I’m obviously not suggesting that I have a lock on how Sears will react. It’s simply that Sears shares are consistently untrustworthy, and when your business is going under, you have to bet on the downside.
When you make so many bearish forecasts and they all make you look like a genius, you have to ask yourself: Are you so smart, or is Sears so obviously terrible?
It’s probably the latter.
Let’s look at management. CEO Eddie Lampert “blasted the media on Wednesday for ‘unfairly singling out‘ the company over the past decade and blamed “irresponsible” coverage for the retailer’s woes” a while back. Perhaps he has forgotten the drama that J C Penney Company Inc (NYSE:JCP) endured, or more recently, questions about luxury mall Macy’s Inc (NYSE:M).
InvestorPlace feature writer James Brumley was the first to question Lampert’s sanity, addressing the sunken cost angle. But there’s a PR perspective, too. As a business leader, you never, ever blame others for your problems. Doing so makes you look small, petty and pathetic.
Lampert has bigger problems to worry about than his image, however.
The problem is, Lampert is full of complaints, and the occasional lip service to turning the company around, but legitimate and feasible turnaround strategies are few and far between.
Most times, Lampert would be better off saying “no comment” than opening his mouth for anything else.
SHLD Stock Is a Fundamental and Technical Mess
Even a look at the most basic numbers behind Sears shows just how hopeless the situation is.
Revenues have been on the decline for the better part of the past decade, and they’re off by more than a third over the past three years alone, to a paltry $22 billion. Earnings are long absent, and losses are just accelerating. A net loss of $1.37 billion back in 2013 blimped to a $2.22 billion deficit last year.
Cash is at $236 million. Total debt is at $4.3 billion. The only cash flow is out.
Or you could take it from the horse’s mouth. When Sears delivered its annual report in March, the company wrote that “substantial doubt exists related to the Company’s ability to continue as a going concern.” The use of the phrase “going concern,” by the way, is code for “we could go bankrupt.”
Even the technicals aren’t cooperating.
Sears has lost nearly half its market value since April 19. The company has long traded under its 50- and 200-day moving averages, and the shorter-term 20-day MA dipped below both longer-term lines a few weeks ago — a bearish cross pattern that doesn’t bode well. The only saving grace is that the 50-day moving average is getting close to crossing over the 200-day — a so-called “golden cross that could give shares a technical lift.
If that doesn’t happen, SHLD still has downside to the $5.50 level, where Sears sank to back in February. Consider that the absolute last line of defense.
Shares have shown zero ability to build off of short-covering and reactionary buys. The challenge now is that the speculators are no longer interested in Sears because they’ve been badly burnt. The company essentially is at the mercy of short traders, which gives it the ability to occasionally produce a squeeze on the latest headline that the company will be solvent for another few months, but little more.
That’s not a holding. Sears is a swing trade at this point and nothing else. The retail industry is in the midst of a painful transition, and while some companies are making the appropriate moves, Sears is long behind the 8-ball. In fact, if Lampert’s behavior is anything to go by, the house is in chaos.
Most people have already gotten the hint, but if you haven’t, stay away from SHLD stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.