In the last earning report, the company showed that revenue dropped by 0.9%, and this led to a decrease in EPS of 26%. However, the stock is now trading at a higher level compared to a year ago.
Weak fundamentals to remain in place
operates department stores in the U.S. Given the company’s weak fundamentals, and its recently failed turn-around strategy, I would advise investors not to focus on J.C. Penney Company, Inc. (NYSE:JCP) for the time being. Its main figures are weak:
- Operating Margin and Net Margin are negative and
the industry average
- Return on Equity (ROE) has decreased when compared to the same quarter one year prior
- Cash to debt ratio of 0.3% could indicate deteriorating cash flow and liquidity risks going forward
Moreover, valuation is still not attractive. I would only go long on J.C. Penney Company, Inc. (NYSE:JCP) if its P/B ratio, currently at 1.3 times, would go below 0.8 times. The company has a huge real estate asset base that could make it attractive if it was selling at a significant discount to book value.
Macy’s, Inc. (NYSE:M) is the best pick considering the company’s out-performance of the stock market. Its strengths can be seen in EPS and revenue growth, increase in net income, and high ROE. Comparisons to Target Corporation (NYSE:TGT) make Macy’s, Inc. (NYSE:M) shares look undervalued, considering a ROE of 22.1% versus 18.1% and a P/E ratio of 14.3 times versus 16.5 times. Paul Tudor Jones and Jim Simons also invested in this stock in the last quarter, and i would follow them if I was looking for any stock within the retailer’s space.
Vanina Egea has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Vanina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article U.S. Retailers: 3 Companies and Only 1 Long Opportunity originally appeared on Fool.com is written by Vanina Egea.
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