Earlier this month, J C Penney Company Inc (NYSE:JCP) hit a new 52-week low. It was just below the previous low hit in mid-August, and JCP stock is now down 58% on the year. At some point, it may be worthwhile buying the stock, but is it now?
The shift in retail has been seismic. Despite the economy humming at a solid pace with record-low unemployment and some of the strongest data since the Great Recession, there’s been an unbelievable amount of bankruptcies in retail. If broken companies aren’t filing for Chapter 11, they’re closing stores left and right. Even many of the retailers that are doing well are shuttering or scaling back their expansion plans.
Amazon.com, Inc. (NASDAQ:AMZN) and others have dealt a serious blow to department stores. Mall traffic is at its lowest levels in decades. Consumers are shopping at discount stores like Nordstrom Rack by Nordstrom, Inc. (NYSE:JWN), TJX Companies Inc (NYSE:TJX) and Burlington Stores Inc (NYSE:BURL).
Can JCP Hang?
Macy’s Inc (NYSE:M), Kohl’s Corporation (NYSE:KSS), JCPenney and countless others have struggled. But where does JCP stock stack up? The company’s market cap has dwindled down to just $1 billion. I know it feels like a long time since Penney’s was relevant, but its demise has been swift. In early 2007, JCP stock was above $80 with a market cap of $18 billion.
Macy’s and Kohl’s haven’t done all that well either. In fact, Macy’s was pitched as a top pick at the Delivering Alpha conference just a few years ago. A big part of that premise was its real estate value, arguing that shares could be worth $125. Whoops.
And while Macy’s has struggled too, at least it’s consistently profitable. It also generates close to $1 billion in free cash flow (FCF). KSS isn’t as good a performer as Macy’s when it comes to FCF, but it’s far better than JCP. JCPenney just got into positive FCF territory in 2015.
Additionally, M and KSS both have huge dividend yields, standing at 7.4% and 5.1%, respectively. While JCP stock hasn’t resumed its dividend since cutting it in 2013. If investors felt compelled to bet against e-commerce and go with a contrarian pick like department stores, I don’t know why they would go with JCP stock over M or KSS.
JCP is a $3.50 stock, and it’s sub-$5 for a reason. And sure, it could pop back to $5 and give investors big gains on a percentage basis, but let’s not act like Macy’s and Kohl’s can’t make similar moves as well.