Can J.C. Penney Stock Rebound?

With shares of J.C. Penney (NYSE:JCP) trading around $7, 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 rattled investors Wednesday by saying it is “pleased” with its holiday sales performance but without disclosing any specific figures. The struggling department-store chain had touted improving sales in each of the previous two months, each time giving details of its sales growth. The markets automatically assumed the worst about the departure from that precedent, sending Penney’s stock down 8 percent in morning trading. “The length of JCP’s holiday update tells you everything you need to know about the company’s performance during the five-week December period,” Charles Grom, an analyst at Sterne Agee, wrote to clients. “Said differently, our gut tells us that if JCP had a good print in their back pocket — they would have disclosed it in far greater detail.”

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 currently pulling back. 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 rising key averages, which signal neutral to bearish 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

91.03%

80%

78%

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

February Options

Steep

Average

March 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 significant 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 Mixed 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

246.43%

-297.01%

-110.67%

-518.09%

Revenue Growth (Y-O-Y)

-5.06%

-11.88%

-16.40%

-28.41%

Earnings Reaction

8.38%

5.97%

-4.15%

7.37%

J.C. Penney has seen rising earnings and decreasing 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), Kohl’s (NYSE:KSS), and sector?

J.C. Penney

Macy’s

Sears

Kohl’s

Sector

Year-to-Date Return

-17.60%

-2.81%

-10.70%

-2.80%

-9.47%

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. The company rattled investors Wednesday by saying it is “pleased” with its holiday sales performance but without disclosing any specific figures. The stock has struggled in recent years and is currently pulling back. Over the last four quarters, earnings are improving and revenues have been declining, which has produced conflicting feelings among investors. 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 this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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