NEW YORK (TheStreet) -- Wall Street is investing by the mantra "no news is good news" when it comes to J.C. Penney (JCP). After a week which saw the retailer lose one-fifth of its value and saw its stock price fall into the high-single digits, the stock is rallying 4.8% to $8.47 on Monday.
Last week, the Plano, Texas-based retailer posted a double-digit comparable sales gain of 10.1% for November, a remarkably stronger figure than the 34% drop in comparable sales over the same period a year earlier.
Then, on Thursday evening, the department chain disclosed it had received a letter of inquiry from the Securities and Exchange Commission regarding its financial position, including its liquidity, debt and details of its proposed public stock offering.
"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.
A second nail in the coffin came when hedge fund manager J. Kyle Bass told Bloomberg on Friday 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.
Year to date, the stock has fallen 57.1%. The SPDR S&P Retail (XRT) ETF has gained 38.56% 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 a number of negative factors, 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).
- You can view the full analysis from the report here: JCP Ratings Report