A beloved home decor retailer may be on the verge of bankruptcy. Joann (NASDAQ:JOAN) has provided shoppers with fabrics and other sewing supplies for more than eighty years. But after a challenging year, this company may be nearing the end of its lifeline. March 2024 kicked off with a report from Bloomberg that the company could be considering filing for Chapter 11 bankruptcy due to its excessive debt burden. While this news did not instantly boost JOAN stock, shares are rising today. However, if bankruptcy is on the table, investors should approach the stock with extreme caution, as the company has likely fallen too far to bounce back.

A quick look at JOAN stock’s poor performance is concerning enough. But new data from Rapid Ratings supports the case that Joann is a high risk company. The ratings service advises suppliers to avoid the company due to its “unsustainable” business model. And if suppliers shouldn’t touch a company, investors would be wise to follow suit.

What’s Happening With JOAN Stock

When news broke of the bankruptcy talks, JOAN stock responded as expected: it plunged significantly. When a company starts seriously exploring Chapter 11, it’s natural that the market wouldn’t react well. Shares have fallen more than 50% over the past five days, suggesting that the company has accelerated its own race to the bottom.

According to anonymous sources who spoke to Bloomberg, the current bankruptcy deal would include Joann handing control over to its lenders. This would enable the company to shed its excessive debt, but it would also leave its future in the hands of new owners whose motives could easily center around selling it off for parts. As The Street reports: “Once a retailer, or any other company, files Chapter 11 bankruptcy it loses control of its fate.”

While nothing has been finalized as of this writing, things don’t look good for Joann right now. Per Bloomberg:

“Joann has struggled to maintain liquidity and manage inventory levels amid a challenging environment for retailers. It raised more than $34 million in a sale and leaseback deal for its Hudson, Ohio facility, but is contending with high interest expenses and required term loan payments, Moody’s Investors Service wrote in a note in January.”

On top of these financial problems, reports are circulating of Joann’s stores closing across the country. In September 2023, it announced layoffs at its corporate headquarters. It’s hard to ignore the chain of distress signals that have led the company to the brink of Chapter 11 and has pushed JOAN stock down to less than $0.25 per share.

The Next Meme Stock? Not Likely

The bankruptcy talks might raise the question of whether or not JOAN is destined to become the next meme stock. We saw precisely that scenario play out in 2022 when cosmetics dealer Revlon surged on short-squeeze hopes after taking the Chapter 11 route. Joann might also call to mind Bed Bath & Beyond, a former meme stock. The troubled company garnered a loyal army of retail investors before it opted to liquidate and give its shareholders nothing.

That said, the r/WallStreetBets crowd doesn’t seem interested in Joann. JOAN stock has only received one mention on the popular Reddit forum in the past 24 hours. While shares have received a slight boost today, it certainly isn’t enough to suggest a short squeeze. Investors may have finally learned that betting on troubled companies doesn’t often yield good results, and when it does, they never last.

Joann is likely on its way out, and no one seems interested in trying to save it.

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On the date of publication, Samuel O’Brient 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.