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Bon-Ton Stores Isn't a Retail Value Trap, It's a Train Wreck

NEW YORK (TheStreet) -- On Jan. 13, in an article on TheStreet I warned investors about retail "value traps" such as The Bon-Ton Stores (BONT - Get Report), Sears Holdings (SHLD) and J.C. Penney (JCP). Over the past two weeks, Bon-Ton has fallen more than 25%. And it is becoming clear that Bon-Ton is more of a retail train wreck than a value trap.

A value trap is a stock with such appealing valuations that investors buy, anticipating gains when the market more efficiently prices the stock. At least, that's the hope. Value plays are cheaply priced stocks that will then appreciate nicely. Value traps are cheap stocks that will drop even further. And beyond the value trap is the train wreck.

Bon-Ton stock is cheap, but it's not attractive. The price-to-sales ratio is 0.08. Each dollar of sales for Bon-Ton Stores is priced at more than a 90% discount in the stock. As the share price has fallen more than 40% in the last month, that is hardly a profitable investment unless an investor holds a short position.

There is certainly no shortage of those investors with Bon-Ton Stores.

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A short position of 5% is considered to be troubling for a business. The short position for Bon-Ton Stores has been ticking up, and is now more than 29%, according to Yahoo Finance. For Sears Holding, the short position is 55.4%. J.C. Penney has a short position of over 56%. That is certainly not the case with all in the retail sector -- Wal-Mart (WMT) has a short position of just 1.5%.

Bon-Ton Stores has been caught up in a "perfect storm" of adverse conditions affecting some retailers.

Compare Bon-Ton to Amazon (AMZN), which had a record holiday season. There is no discounting the toll that Internet shopping takes on the sales of retail stores like Bon-Ton. On a quarterly basis, sales growth is down 2.4% for Bon-Ton. Over the past five years, sales growth has tumbled by 3%. Even more concerning is that comparable store sales are expected to decline by around 3.5 % for 2013, according to guidance just issued by the management.

It is difficult to see how Bon-Ton Stores is not in a retail death spiral.

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