This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Retail Value Traps and Value Plays


The return-on-equity and debt, taken together, should be in line with others in the sector that are well-managed.

These are valuable indicators. The return-on-equity demonstrates how much profit the company is making off what it owns. Debt is reveals how well it is able to finance the enterprise without borrowing money. Together, these show how efficiently and how effectively the business is operating.

Warren Buffett likes to see a return-on-equity of 20%. Wal-Mart has a return-on-equity of 23.60%. Wal-Mart has a debt-to-equity ratio of 0.84. (Hence, 84 cents required to produce every dollar of equity for Wal-Mart.)

For Sears, the return-on-equity is a negative 62.90% and the debt-to-equity ratio is 2.54. J.C. Penney has a return-on-equity of a negative 71.80% with a debt-to-equity ratio of 2.12. The return-on-equity for Bon-Ton is 13.60% with a debt-to-equity ratio of 20.30.

Must Read: Insider Bets Paying Off At RDN As New 52-Week High Reached

While a picture may be worth a 1,000 words, the price is the only number that matters when it comes time to buy or sell a stock.

For Sears, Bon-Ton, and J.C. Penney, a very ugly portrait has been composed. All are down around 10% for the last month of market action, and off for the week, too. With the level of debt that each has combined the grim sales and earnings performance, it is no wonder the return-on-equity is so poor for all. That is why these collapsing retail stores are not value plays, but "pathetic" value traps that investors should avoid.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Jonathan Yates has written for numerous publications including Newsweek and The Washington Post. He is a former general counsel for a publicly traded corporation. Much of his career was spent working on Capitol Hill for Members of Congress in both the House and Senate. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
SHLD $27.20 0.00%
AAPL $109.27 0.00%
FB $88.26 0.00%
GOOG $600.70 0.00%
TSLA $241.93 0.00%

Markets

Chart of I:DJI
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASDAQ 4,683.9190 -49.5780 -1.05%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs