NEW YORK (TheStreet) -- For J.C. Penney  (JCP) investors, it's a life of heartache. Just when things are looking up, the stock takes a turn for the worse and dives. That was Thursday's story when the retailer's shares fell 8.4% to $8.85 on trading volume nearly double its average. In trading Friday, the stock was falling a further 3.8% to $8.52.

On Thursday evening, the retailer disclosed it had received a letter of inquiry from the U.S. Securities and Exchange Commission regarding its financial position. The letter, received on Oct. 7, requests information on liquidity, debt and details on the public stock offering it announced late September. 

"The company is cooperating with the Securities and Exchange Commission in regards to its inquiry," J.C. Penney said in a recent SEC 10-Q filing

Mid-week, the bruised-and-battered department chain posted a pleasing double-digit comparable sales gain of 10.1% in November. On second glance, however, the figures weren't as strong as they seemed when taking into consideration that in the same period a year earlier comparable sales dropped 34%.

Also hurting investor sentiment, hedge fund manager J. Kyle Bass told Bloomberg he had sold his stake in the Plano, Texas-based business. As of September, the Bass-run hedge fund Hayman Capital Management held 11.4 million shares, or a 5.2% stake, in the company.

Over the year, management has struggled to return the company to profitability, and in November, investors grew more confident a turnaround was taking root, causing shares to trace higher. The enthusiasm is proving short-lived as J.C. Penney's challenges seem insurmountable against major brick-and-mortar and online retailers such as Macy's  (M) and Amazon  (AMZN).

Year to date, the stock has fallen 55.1%. The SPDR S&P Retail (XRT) ETF has gained 39.08% over the same period.

TheStreet Ratings team rates J.C. Penney as a Sell with a ratings score of D. The team has this to say about its recommendation:

"We rate J.C. Penney (JCP) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, generally high debt management risk, disappointing return on equity and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 2.12 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.36, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Multiline Retail industry and the overall market, J.C. Penney's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for J.C. Penney is currently lower than what is desirable, coming in at 29.47%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -17.59% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$737 million or 1502.17% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • J.C. Penney has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, J.C. Penney reported poor results of -$4.49 a share vs. -73 cents a share in the prior year. For the next year, the market is expecting a contraction of 35.5% in earnings (-$6.09 vs. -$4.49).

Also see: The 10 Drunkest States in America... and the 10 Most Sober.

More from Markets

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Jim Cramer: The 10-Year Yield Could Go to 2.75%

Jim Cramer: The 10-Year Yield Could Go to 2.75%

Oil Slumps, Gas Spikes Ahead of Holiday Weekend; Assessing the Chipmakers--ICYMI

Oil Slumps, Gas Spikes Ahead of Holiday Weekend; Assessing the Chipmakers--ICYMI

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Week Ahead: Wall Street Looks to Jobs Report as North Korea Meeting Less Certain

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%

Dow and S&P 500 Decline, Energy Shares Fall as U.S. Crude Oil Slides 4%