Shares of Party City (NYSE:PRTY) stock are trending and up 10% today after the retailer filed for Chapter 11 bankruptcy protection from its creditors.
The bankruptcy filing comes as retail investors are trying to execute a short squeeze on PRTY stock. The Chapter 11 filing has been long rumored and anticipated, and it has been a popular subject on message boards and in chat rooms in recent weeks, including on the WallStreetBets subreddit. Prior to today, Party City’s stock had declined 93% over the last 12 months to trade at 37 cents, putting it deep in penny stock territory.
Party City has officially filed for Chapter 11 bankruptcy, making it the latest in a string of retailers who have succumbed to high inflation and declining consumer spending. The company’s bankruptcy comes weeks after fellow retailer Bed Bath & Beyond (NASDAQ:BBBY) warned that it might be forced into a bankruptcy filing as it struggles with declining sales and high debt servicing costs.
Party City, which is headquartered in Woodcliff Lake, New Jersey, said it has reached a pre-negotiated agreement with a bondholder group to support an “expedited restructuring.” This agreement is expected to be completed in this year’s second quarter. The company reported $1 billion in assets and $10 billion in liabilities in its bankruptcy filing.
The company also said that it has obtained $150 million in debtor-in-possession financing to support its operations in the near term.
Why It Matters
Evidence that the U.S. economy is slowing is being seen in corporate America. While retailers such as Party City and Bed Bath & Beyond look to restructure their finances and debt, a wave of layoffs is hitting the technology sector, with Microsoft (NASDAQ:MSFT) the latest to announce that it is reducing its workforce as demand slumps.
In Party City’s case, the party supply retailer never recovered from the pandemic when sales slowed due to lockdowns and store closures. The company, which has more than 800 stores in the U.S. and Canada, also struggled with higher costs for freight, labor, and raw material over the past year.
The stock’s 10% rise on news of a bankruptcy filing is counterintuitive and any gains are likely to be short-lived. PRTY stock is the latest in a series of so-called “meme stocks” to rise in recent weeks. After Bed Bath & Beyond warned that it might be forced into a bankruptcy filing, its share price rose more than 250%.
What’s Next for PRTY Stock
PRTY stock is rising as retail investors execute a short squeeze. However, the current short squeeze could quickly turn into a pump-and-dump as investors realize gains and sell the stock in short order. As such, investors should proceed very carefully with Party City stock.
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On the date of publication, Joel Baglole held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.