Over the past five years, we’ve watched beleaguered department store J C Penney Company Inc. (NYSE:JCP) make its way steadily downward. JCP stock has nearly halved its value since April 2017 which begs the question- how much lower can J C Penney stock go?

In many cases, a decline like this one leads to an excellent buying opportunity- especially when the company in question is working on a turnaround plan. That’s exactly the case with J C Penney stock.

JCP stock has had its fair share of headwinds over the past few years and the company is still working to dig itself out of a mountain of debt, however the past few quarterly results showed that the department store is starting to show signs of life.

Buying Time

Most importantly, JCP has been able to refinance some of it’s massive debt pile which will buy the firm a bit more time to orchestrate a successful turnaround. The company was burdened by over $300 million in debt that was set to come due in 2019 and 2020, but this year JCP issued $400 million worth of debt in order to pay off those loans.

The new $400 million will come due in 2025, giving the company a bit more time to get its business back on track, but the loan also comes with a steep 8.625% interest rate.

This refinancing was essential for JCP, but it doesn’t guarantee success. JC Penney will still have to pay its new, more expensive loan back when it comes due and in order to do that the firm will need to be on much more stable footing.

Stealing Market Share

JC Penney’s comps in the third and fourth quarter impressed investors, and rightly so- firm saw same-store sales rise 1.7% and 2.6% respectively. When you look at retailers in general, those figures don’t exactly blow the competition out of the water, but they’re enough to suggest stability and they’re certainly a huge step up for JCP stock.

A big reason for those improvements has been the impending death of Sears Holdings Corp. (NASDAQ:SHLD). In an effort to capitalize on Sears’ hardships, JCP stepped up its appliance offerings and that appears to be paying off. As Sears fades out of appliance sales, JCP is picking up some of that marketshare.

The same is true with JCP’s toy offerings. JC Penney made a push into selling children’s toys at the same time that Toys R Us closed its doors.

So is the Turnaround Happening?

There’s no simple answer to whether or not JCP has been successful so far in its turnaround efforts. On one hand, the company’s efforts to improve its store offerings and create a shopping experience that will draw in customers appears to be working- the improving comps speak to that. However, on the other hand the company is still struggling with ultra-low margins.

While the fourth quarter saw less promotional activity cutting into profits, online sales still weighed heavily on margins. On this front, JC Penney is stuck between a rock and a hard place. In order to grow its online presence, JC Penney needs to focus on online sales which are inevitably less profitable than in-store sales. However, on the other hand JCP really can’t afford to grow sales at all costs like some of its peers can.

Should I Buy JCP Stock?

As a speculative play, JCP stock could potentially be a money maker- however it’s important to realize that there’s a huge amount of risk because the firm’s future is far from certain. As my colleague Lawrence Meyers put it, “the way to play J C Penney stock is as a trade.” He recommends buying somewhere below $2.70 and selling in increments as the share price improves.

I agree with Meyers in that respect- if you’ve got the stomach for risk and you are willing to put some of your chips on the line, that kind of speculative trade is definitely worth considering.

However, for me the JCP story simply isn’t compelling enough to believe in. I’m not overly impressed by the company’s improving margins because I think stronger rivals like Home Depot Inc. (NYSE:HD) will eventually dominate the appliance market and toy sales doesn’t look like a particularly strong life-line. With that in mind, I’ll be watching JCP’s turnaround efforts from the sidelines.

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