Water-Logged And Getting Wetter Stock Of The Day: JC Penney (JCP)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified JC Penney ( JCP) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified JC Penney as such a stock due to the following factors:

  • JCP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $121.4 million.
  • JCP has traded 7.9 million shares today.
  • JCP traded in a range 213.5% of the normal price range with a price range of $0.50.
  • JCP traded below its daily resistance level (quality: 5 days, meaning that the stock is crossing a resistance level set by the last 5 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on JCP:

J. C. Penney Company, Inc., through its subsidiary, J. C. Penney Corporation, Inc., sells merchandise through department stores in the United States. Currently there are 3 analysts that rate JC Penney a buy, 4 analysts rate it a sell, and 12 rate it a hold.

The average volume for JC Penney has been 16.9 million shares per day over the past 30 days. JC Penney has a market cap of $2.9 billion and is part of the services sector and retail industry. The stock has a beta of 1.64 and a short float of 28.5% with 6.13 days to cover. Shares are up 5.2% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates JC Penney as a sell. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and deteriorating net income.

Highlights from the ratings report include:
  • The debt-to-equity ratio is very high at 2.03 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Multiline Retail industry and the overall market, PENNEY (J C) CO's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for PENNEY (J C) CO is currently lower than what is desirable, coming in at 33.06%. Regardless of JCP's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, JCP's net profit margin of -12.56% significantly underperformed when compared to the industry average.
  • JCP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 35.76%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The change in net income from the same quarter one year ago has exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income has decreased by 1.1% when compared to the same quarter one year ago, dropping from -$348.00 million to -$352.00 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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