Has Struggling J.C. Penney Bottomed?

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Source: Thinkstock

Source: Thinkstock

J.C. Penney (NYSE:JCP) investors have been on a wild ride over the past few months. For the year, the stock is down 6 percent, but at one point it had been down more than 50 percent. Since bottoming in early February, the stock has been one of the best performers in the market, with shares essentially doubling and reaching the $9/share level again.

But just recently when the stock reached the $9/share level, it violently rejected it. We saw the stock bounce off of it for a while before falling back down to $7/share. We’re now back at that level. Is it time for the stock to break out, or are we going to see another rejection?

The company has clearly been under an incredible amount of pressure. While it reported a small net profit in the most recent quarter, investors have become accustomed to large losses. As a result, the stock has lost an incredible amount of value. It is down 50 percent in the past year, and it has lost three-fourths of its value in the past five years despite relative strength in the broader stock market and in retail stocks more specifically. Furthermore, the company has assumed a lot of debt, it has put its real estate up as collateral, and it had to punitively dilute shareholders late last year.

Many investors believe that the company has turned around, and there is little doubt that the company has made moves that indicate that a turnaround could be around the corner. Most notably, management has substantially cut costs, and furthermore, it has begun shutting down the least economic locations. While the company should have begun doing this more than a year ago, I must commend management for the excellent job it has done so far staving off bankruptcy or, at the very least, another secondary offering.

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