Moribund retailer J.C. Penney Company, Inc. (NYSE:JCP) isn’t dead yet. In fact hedge fund legend George Soros thinks the decaying department store chain has a future.
J.C. Penney Company, Inc. (NYSE:JCP)’s stock price shot up by around a dollar a share when Soros disclosed the fact that he has purchased a 7.9% stake in the retail basket case. So what’s old George doing here? J.C. Penney Company, Inc. (NYSE:JCP) has had a pretty miserable time of it in recent years; the company’s same store sales fell by 16.6% in the first quarter of 2013, and the company’s sales fell by around $3 billion between fiscal years 2012 and 2013.
Numbers proves Penney’s is worse than you thought
Those numbers translated into a negative year to year revenue growth rate of more than 20% and a negative diluted earnings per share figure of $3.5. The EPS and the revenue growth were not the only figures in the negative at J.C. Penney Company, Inc. (NYSE:JCP). The company reported a net income of -$985 million on Jan. 31, 2013. That’s right, Penney’s income fell nearly a billion dollars in the fiscal year 2013.
The drop in stock value from $33 a share on May 14, 2012 to $15.50 a share on April 5 seems justified. Yet something interesting has been happening at JC Penney (NYSE:JCP)’s. Its share value has been rising for over a month; it was trading at $18.90 a share at the end of business on May 15. The interesting thing is that this rise in value appears to have begun long before Soros’ stake became public. Something is definitely going on at J.C. Penney Company, Inc. (NYSE:JCP)’s.
Is Soros crazy like a fox?
If you judge by the numbers, Soros looks crazy here–but is he crazy like a fox? Soros is not a stupid man; he’s pulled some rabbits out of hats before, usually by betting against the market.
Perhaps Soros smells a bargain here; he is a contrarian, and he might believe that all the media hype about the problems at J.C. Penney Company, Inc. (NYSE:JCP)’s is overstated. Soros likes to bet against the market. Like Warren Buffett, he’s a firm believer in Ben Graham’s Mr. Market hypothesis—the belief that the market is insane and often acts irrationally.