Party City (NYSE:PRTY) stock is climbing 19% to 54 cents in early trading after soaring 118% yesterday. The retailer’s shares more than doubled yesterday after Bloomberg reported that PRTY, which sells party goods, was looking to obtain funds that would allow it to possibly declare bankruptcy and take subsequent steps to improve its balance sheet.
Party City Is Holding Talks
The troubled retailer is speaking with representatives of its creditors as it considers filing for bankruptcy, Bloomberg reported yesterday.
The Wall Street Journal stated last week that Party City intends to declare bankruptcy “within weeks.” According to the newspaper, the retailer had hired a restructuring adviser and was negotiating with its bondholders in an effort to turn a portion of its bonds into stock. Such a deal would bolster the company’s balance sheet, the newspaper explained.
PRTY Stock: A Potential Short Squeeze
Retail traders appear to be triggering a short squeeze in PRTY stock. As I reported on Jan. 9 in an article about another troubled retailer, Bed Bath & Beyond (NASDAQ:BBBY), “In recent years, a number of stocks, including Hertz (NASDAQ:HTZ) and Revlon (OTCMKTS:REVRQ), shot up for some time after the companies declared bankruptcy.”
I theorized that: “Some retail investors may be trying to turn BBBY stock into the next name that rallies for a while after going belly up.” Now it looks like retail investors are succeeding in triggering such rallies in both BBBY and PRTY as both retailers apparently prepare for likely bankruptcies. Yesterday BBBY jumped 28%, and it’s soaring another 25% so far today.
Party City’s Woes
In recent quarters, Party City has been hurt by inflation and the elevated cost of helium, which is used in many balloons. Increased competition from the dollar stores, a greater tendency to celebrate away from home in the wake of the pandemic, and higher interest rates may also have played roles in its demise.
As of the end of the third quarter, PRTY had only $30 million of cash and $2.58 billion of debt, while its Q3 operating cash flow came in at negative $161 million.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the publication date, Larry Ramer did not have (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.