Sears: Too Cheap to Resist

Aug.18.06 | About: Sears Holdings (SHLD)

Did you hear the one about the $21 billion retailer that grew profits 83% in one year? Their stock went down 6% following that report! Ha ha ha, that's a good one!

Aside from providing further proof that the whole market is on crack, what is going on here? Apparently Sears Holdings Corp. (NASDAQ:SHLD) has this wacky idea that, since they took the stock from $30 to $140 since Uncle Eddie bought Kmart, maybe they should buy something else.

The company added $1.5Bn in cash to bring cash reserves up to $3.7Bn and has added $6Bn to inventory since last year (big sale coming I bet). So we have $4Bn in cash, $9Bn in inventory, one of the world's top 10 brands and 3,900 or North America's best retail locations (almost all fully paid for and unmortgaged) all for $21Bn.

So, if we deduct the cash and cut the inventory value in HALF, we have 3,900 stores that each generate an average of $300,000 a year in profits and are being valued less than $3M per store.

Who is selling this thing???

I'm not going to be a hero but I will be looking for an entry opportunity before this breaks the 50 dma at $147 but I will be very surprised if it sells all the way down to the 200 dma at $135.

SHLD 1-yr chart: