From a fundamental perspective, there appears to be a case for J C Penney Company Inc (NYSE:JCP) stock. The JCPenney stock price has fallen 58% so far this year. JCP stock now trades at just 7x the midpoint of fiscal 2017 earnings, and the JCP stock price is below the company’s book value of $3.72.

The problem is that this remains a business likely to decline going forward, even if that decline doesn’t come this year. The company has done a nice job rebounding from the self-inflicted sales weakness seen earlier this decade. Profits are expected to increase this year, with EPS guided by the company to rise to $0.40-$0.65 from $0.08 last year.

But beyond this year, the road gets tougher. JCP earnings are benefiting from SG&A cuts and lower interest expense. That’s not necessarily sustainable going forward. And with same-store sales guided flat this year, those sales need to improve going forward, or else profits almost certainly will decline as expenses resume their natural upward trend.

And that’s a big problem for JCPenny stock, given that JCPenney has some $4 billion in debt. JCPenney has to stay profitable for a long time to be able to pay down that debt and return capital to shareholders at some point. Truthfully, I’m not convinced the company is going to last that long.

What’s Driving the Declining JCP Stock Price?

Again, JCP’s numbers aren’t bad. And aside from a disappointing second quarter, which led to a two-day, 24% reduction in the JCPenney stock price, it’s been external factors pushing down JCP stock.

The most obvious is the fear of e-commerce — namely Amazon.com, Inc. (NASDAQ:AMZN) — pushing down department store stocks. Sears Holdings Corp (NASDAQ:SHLD) stock is down 35% this year. Macy’s Inc (NYSE:M) has fallen 43%. The pressure has increased of late after high-end Nordstrom, Inc. (NYSE:JWN) saw a rumored go-private transaction fall through.

The problem for JCPenney, however, is that those external pressures are very real, and there’s more to it than just Amazon. Regional mall traffic continues to drop. JCP management admitted on the Q2 conference call that its traffic would continue to decline going forward. And that’s a huge problem, no matter how JCPenney responds. The appliance launch makes some sense. JCP clearly is taking market share from Macy’s and Sears, given the notable divergence in same-store sales among the trio. But that share is coming from a clearly declining market.

And that’s a potentially insurmountable problem. It’s exceedingly difficult for a retailer to grow profits on weakening traffic. Typically, expenses rise 2-3% a year. In this environment, flattish same-store sales sound like a win. But, over time, flat comps imply declining profits. Even keeping comps flat for JCP requires steadily increasing transaction values.

That’s a tough task. And the clear concern for the JCPenney stock price is that it’s declining when the company is performing well. What happens if JCP stumbles or the economy turns?

JCP Stock’s Debt Problem

In theory, with JCP stock trading around 7-8x FY17 EPS, some level of earnings decline already is priced in. But here, I’m not sure that’s the case. JCPenney still has over $4 billion in debt, with its term loan restricting its ability to pay dividends. There’s another $2.5 billion or so in operating lease commitments, per figures from the FY16 10-K.

JCPenney, then, has to pay back a substantial amount of that debt to be able to return capital to shareholders. (There’s $1.65 billion left on the term loan, for instance.) That will be a multiyear process, even assuming current trends hold.

If cash flow and earnings decline, that road gets difficult, if not impossible. It’s worth pointing out that JCPenney bonds, even after better results the last few years, still price in a material chance of bankruptcy. Its bonds yield 9.5-11%, with a 7.4% issue due in 2037 priced at just 69 cents on the dollar.

That market is pricing in the risk that JCPenney won’t be able to drive enough cash flow to cover its debt. And in that eventuality, the JCP stock price goes to zero.

JCPenney Stock Price Isn’t Cheap Enough

At the end of the day, the problem for JCPenney stock is that it has to stabilize cash flow. And that probably means comps have to stay positive for at least a few years, keeping margins reasonably intact and earnings and cash flow roughly flat.

That’s simply not a bet I’m willing to take. There is too much pressure on mall traffic. Discounting remains rampant. The shift to e-commerce and “omnichannel” retailing is necessary in this environment. But as seen elsewhere, it also raises costs and hits margins.

I’m not shorting JCP stock at these levels, nor do I think bankruptcy is guaranteed. But the risk of the JCP stock price going to zero is very real even if current trends hold. JCPenney has done a nice job the last few years. But with a huge debt load and industry pressure, it simply may not be enough.

As of this writing, Vince Martin has no positions in any securities mentioned.