NEW YORK (TheStreet) -- Traders who made money on J.C. Penney (JCP) after Marc Lasry of Avenue Capital, a $12 billion hedge fund, spoke bullishly about the retailer at an investors' conference in Chicago in October were those who shorted the stock.
On Oct. 30, shares of J.C. Penney traded at $7.60. Now the stock is trading close to $7. With a short float of 29.59% (5% is considered to be troubling), many are betting that the shares will fall further. There are many reasons for the bearish outlook.
Sales growth is falling, the company is losing money and it has a high debt level with a debt-to-equity ratio of 2.12 to 1. It is difficult to see how its massive debt load won't become a crippling, if not fatal, problem for J.C. Penney.
The biggest concern, meanwhile, is shoppers don't want what J.C. Penney is selling.
The stock -- down almost 60% over the past year in a bull market -- fell 9% last Wednesday after the company failed to give a same-store sales figure for December, leading some to suspect that same-store sales were flat when an increase was expected.
Maxim Group analyst Rick Snyder has warned that unless store traffic increases, the company has no hope. In May, Maxim had upgraded J.C. Penney to buy with a target price of $27.
That is all part of J.C. Penney having the pitfalls of a classic value trap. The average return-on-equity for a retail store is 18.67%. For J.C. Penney, it is a negative 71.80%.