With J.C. Penney (NYSE:JCP) hovering near key support, some investors might be thinking it’s time to scoop up JCP stock. That’s one way of thinking, but given the market we’re in, I’d rather avoid JCP.
In fact, I think there are three main reasons to avoid this department store dud, even as we head into the back-to-school and holiday seasons.
So why wouldn’t we buy JCP stock as we head into the vital back-to-school season, even as it’s near its lows?
A bounce in JCP wouldn’t catch many investors off guard, but as an investment it’s not worth it. We can buy names like Kohl’s (NYSE:KSS) Macy’s (NYSE:M), Target (NYSE:TGT) and even indirect retailers like Home Depot (NYSE:HD).
In fact, Home Depot just delivered a real humdinger of a quarterly result Tuesday morning.
These companies are all doing much better, fundamentally and technically speaking, and all of them pay dividends. Does JCP stock pay a dividend? Of course not.
So could we get a bounce from $2.50 to $3.00 in JCP and could it vastly outperform other retailers over the short-term? Yes. Is it worth picking up pennies in front of a steamroller to do it? Not to me.
JCP Stock and Its Balance Sheet
Let’s highlight that point by looking at Penney’s balance sheet and fundamentals. When my mother-in-law can coupon on her way into paying just a few bucks for a slew of clothes, you know JCP is in trouble.
It is encouraging to see short-term debt fall from $319 million a year ago to $49 million in the most recent quarter. However, that does little good when long-term debt still sits at $4.35 billion, up slightly year-over-year. Remember, JCP has a market cap of just $775 million.
Cash sits at just $181 million, down big from $363 million a year ago. Accounts payable rests at $933 million, up about 4.4% YoY.
Analysts expect sales to fall 1.2% overall this year and grow just 0.2% in 2019. On the plus side, analysts do expect profit this year, but the downside is they only expect earnings of 4-cents-per-share. That’s down big from the 22-cents-per-share in profit from 2017. In 2019, they only expect earnings-per-share of 14 cents.
In other words, despite a number of other companies doing well, the consensus is that 2017 will be a better year for JCP than 2018 and 2019.
Trading JCP Stock
Will it be better when JCP reports earnings later this week on the morning of Aug. 16? Maybe. I honestly can’t say one way or the other what will happen. JCP could have 40% upside for all I know. I just know that the underlying business is in trouble and that I don’t want to own it.
Investors can ride even the worst of companies for a big gain if they time it right. While true, I would simply prefer to invest in companies that are doing well. At least for the investors wanting to play JCP stock though, we can manage the risk.
With shares sitting near the lows, investors can take a stab at JCP and bail if support fails. On the upside, the 50-day has been resistance. For any attractive upside to exist, Penney’s must get above this mark.
If it can, the $2.80-ish level is in target. However, it will hit downtrend resistance (black line) and level resistance (blue rectangle) at this intersection. The 100-day moving average at $2.70 will not help matters. If by some chance it gets above all of these levels, see how it handles the 200-day near $3.00.
That said, with this much overhead resistance, Penney’s isn’t an attractive name for me.