Where Will J.C. Penney Stock Go Next?

With shares of J.C. Penney (NYSE:JCP) trading around $16, 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 over a thousand 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 through its Internet website at jcp.com. It sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products through Sephora inside J.C. Penney, 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. The products J.C. Penney is able to produce and market can take the company to rising profits, but it would need to see a change of approach soon.

T = Technicals on the Stock Chart are Mixed

J.C. Penney stock has been subject to a significant amount of selling over the last year. The stock is now trading at lows not seen since the financial crisis. 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 between its key averages which signal neutral price action in the near-term.

JCP

(Source: Thinkorswim)

Taking a look at the implied volatility (red) 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

52.34%

10%

9%

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

Put IV Skew

Call IV Skew

August Options

Steep

Average

September Options

Steep

Average

As of today, there is an 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 minimal amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-110.67%

-518.09%

16.42%

-1057.14%

Revenue Growth (Y-O-Y)

-16.40%

-28.41%

-26.57%

-22.63%

Earnings Reaction

-4.15%

7.37%

-16.96%

-4.84%

J.C. Penney has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have not been pleased with 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), Kohl’s (NYSE:KSS), and sector?

J.C. Penney

Macy’s

Sears

Kohl’s

Sector

Year-to-Date Return

-14.56%

27.06%

6.62%

23.64%

15.48%

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

Conclusion

J.C. Penney is a marketer and provider of the latest apparel and household furnishings with a presence in most of the United States and Puerto Rico. The stock has witnessed significant selling pressure over the last several years that has taken it to lows not seen since the financial crisis. Over the last four quarters, investors in the company have not been pleased as earnings and revenue figures have been decreasing. Relative to its peers and sector, J.C. Penney has been a weak year-to-date performer. WAIT AND SEE what J.C. Penney does in coming quarters.

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