Don’t Be Fooled By the J C Penney Company Inc Mini Rally

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JCP stock - Don’t Be Fooled By the J C Penney Company Inc Mini Rally

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As my colleague Anthony Mirhaydari noted in his article on “5 Turnaround Stocks” last week, J C  Penney Company Inc (NYSE:JCP) stock is in the midst of a nice little comeback. JCP stock is up more than 40% in the last month. But if you look closer, the recent run-up is merely the latest false start for a stock that is still down 60% this year.

Rally Nothing New for JCP Stock

This year alone, JCP has mustered rallies of, in chronological order, 13%, 28%, 20%, and now 40%. What did those rallies all have in common? They followed a much steeper drop-off in the JCP stock price. Hence, a year-to-date chart of JCP looks like an escalator going down.

JCP stock has lost more than half its value in 2017.True, the latest rally is the stock’s biggest jump in more than a year. But it also comes after a huge dip in October and early November to a new all-time low of $2.37. In the spirit of Black Friday, bargain hunters spotted the discount and swooped in to help JCP stock recover most of its mid-autumn losses.

Like all its other rallies this year, however, the recent JCP run-up is temporary. The company’s sales continue to stagnate, with analysts expecting another small decline next year. Profits remain elusive, as they have since 2011. But the real reason behind JCP’s precipitous fall is much simpler — and more macro: Department stores are dying.

JCPenney closed 127 stores in the second quarter, more than 10% of its total locations. It’s not alone. Store closings have more than tripled this year, according to the research retail firm Fung Global Retail & Technology. Through October, more than 6,700 retail stores had been shuttered, breaking the previous record set in 2008 — with two months in the year still to go.

JCP Stock Not Alone

Meanwhile, shares of JCPenney’s department-store contemporaries have been dropping like flies: Macy’s Inc (NYSE:M) is down 29% this year, Sears Holdings Corp (NYSE:SHLD) is down 51%, Dillard’s, Inc. (NYSE:DDS) is down 7%, and Kohl’s  Corporation (NYSE:KSS) is down 1%. And not a single one of them grew sales in the most recent quarter.

Really, JCPenney’s problems are symptomatic of a decaying industry — one that’s been put out of business by Amazon.com, Inc. (NASDAQ:AMZN), eBay Inc (NASDAQ:EBAY) and an army of online retailers. With malls across America closing, department stores have been the No. 1 casualty of the digital shopping revolution. No matter how once-great retailers like JCPenney try to convince you they’re getting with the times, the truth is that time has already passed them by.

JCP Stock Will Soon Fizzle Again

Now, investors are passing them up, selling them off by the bushel-full. JCPenney execs can shuffle the deck chairs on the Titanic all they want — a new deal with Sephora and more high-priced appliances are the latest tricks up JCPenney’s sleeve. But department store stocks like JCP have the appeal of a day-old bagel: cheap, but not particularly appetizing to anyone looking for anything other than a quick fix. And with no real growth on the horizon, there’s nothing for long-term investors to hang their hat on.

So, while the recent push in JCP stock has acted as a much-needed tourniquet, we’ve seen similar rebounds in the stock all year. Soon enough, the bleeding will start again.

When it does, best not to get any on your shirt.

As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.

 


Article printed from InvestorPlace Media, https://investorplace.com/2017/12/dont-be-fooled-jcpenney-company-inc-jcp-stock-mini-rally/.

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