Is J.C. Penney Stock Doomed?

With shares of J.C. Penney (NYSE:JCP) trading around $9, is JCP an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

J.C. Penney is a retailer operating more than 1,000 department stores in just about every state in the United States and Puerto Rico. Its business consists of selling merchandise and services to consumers through its department stores and website. It sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products through Sephora, and home furnishings. The company has not done too well in recent years, but it is doing what it can to be a top provider of apparel and related products.

J.C. Penney shares have fallen more than 15 percent since Friday, when the struggling retailer announced that it was issuing $1 billion in stock, as it’s strapped for cash before the holiday season. On Monday, another investor announced that it’s dumping its J.C. Penney stock. Perry Corp. has sold more than half of its shares in J.C. Penney, reducing its total stake to 3.28 percent, Reuters reports. Some have speculated that a long government shutdown could spell the end for the retailer.

T = Technicals on the Stock Chart Are Weak

J.C. Penney stock has been getting hit hard in the past couple of years. The stock is now trading at lows not seen for a number of years. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, J.C. Penney is trading below its key averages, which signals neutral to bearish price action in the near term.

JCP

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of J.C. Penney options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

J.C. Penney Options

98.11%

83%

80%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Steep

Average

November Options

Steep

Average

As of Tuesday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

E = Earnings Are Decreasing Quarter Over Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on J.C. Penney’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for J.C. Penney look like and, more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-297.01%

-110.67%

-518.09%

16.42%

Revenue Growth (Y-O-Y)

-11.88%

-16.40%

-28.41%

-26.57%

Earnings Reaction

5.97%

-4.15%

7.37%

-16.96%

J.C. Penney has seen declining earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about J.C. Penney’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has J.C. Penney stock done relative to its peers – Macy’s (NYSE:M), Sears (NASDAQ:SHLD), and Kohl’s (NYSE:KSS) — and sector?

J.C. Penney

Macy’s

Sears

Kohl’s

Sector

Year-to-Date Return

-54.70%

12.07%

49.98%

21.38%

12.63%

J.C. Penney has been a poor relative performer, year to date.

Conclusion

J.C. Penney aims to provide the latest apparel and household products to consumers and companies across most of the United States and Puerto Rico. Recently, another big shareholder has reportedly dumped half of its shares as J.C. Penney continues to see increasing headwinds. The stock has struggled in recent years and is now trading at lows not seen for more than a decade. Over the last four quarters, earnings and revenues have been declining, which has produced conflicting feelings among investors about recent earnings announcements. Relative to its peers and sector, J.C. Penney has been a weak year-to-date performer. STAY AWAY from J.C. Penney stock for now.

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