One under-the-radar stock that has taken a big hit this year is Party City (NYSE:PRTY). Shares of the party gifts retailer have struggled to a greater degree than many of the company’s peers. This underperformance has seen PRTY stock dip more than 90% year-to-date (YTD), with a large drop off seen in Friday’s session as reports circulate of creditors gathering together ahead of a restructuring for the company.
Party City, like other major retailers, has felt the pinch of inflation. Indeed, surging helium prices and other factors have hit the company much harder than others in this sector. However, it’s Party City’s balance sheet that has many investors and creditors concerned. With $1.8 billion of debt and just $92 million in cash available as of the third quarter, this is a company in dire straits.
Accordingly, with the company’s bonds now trading at pennies on the dollar, investors in the common stock aren’t feeling like bottom fishing. Let’s dive into whether PRTY stock could make for a compelling buying opportunity — or a value trap — at these depressed levels.
Is Now the Time to Buy PRTY Stock?
The macro environment has not been friendly to many retailers. With inventory issues and the potential for a slower-spending consumer this holiday season, investors are generally in selling mode across this sector. However, for Party City, the aforementioned company-specific issues are driving even more concern.
Given the company’s heavily indebted balance sheet and seeming inability to grow out of its hole, questions remain as to the viability of this business as an ongoing concern. Indeed, when bondholders gather together to pursue repayment, that’s generally not a good sign. For equity holders, who are typically last in line in a restructuring/bankruptcy, that’s even worse news. Thus, this selling pressure appears to be warranted.
Right now, I think PRTY stock looks more like a value trap than a value stock at these levels. The company may not make it through 2023. And if it does, it’s unclear how negatively impacted shareholders will be. Accordingly, it’s perhaps best for investors to wait until the dust settles with this name.
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On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.