The classic saying of, "buy low, sell high" seems simple enough to follow. However, the impulse to hold on to shares that have soared on the assumption they might go even higher can be quite tempting. In the case of Sears Holding (NASDAQ:SHLD), the urge to keep riding gains would certainly be understandable. Even after the 150% percent run-up since early January, the shares remain at little more than half the value they were in May of 2010. Even more appetizing to those seeking a big payday is the fact that the shares remain over $120 off their all-time high of $195 set in 2007.
However, before traders get caught up in what could be, it is much more practical and wise to focus on what the end result will more than likely be. That result being a company that is far more likely to retest the January lows than surge another leg higher.
Below are four main reasons why Sears' stock price can face significant challenges in the months ahead.
- Earnings: In the fourth quarter, or the time of year retailers are supposed to shine, Sears reported an ugly $2.4 billion loss. A move that, while rattling investors, also forced CEO Edward Lampert to close 120 stores. With about 4,000 stores left and the holiday shopping season way behind us, more store closings and massive losses are almost guaranteed.
- Lack of leadership: The deterioration of the Sears brand has been widely recognized and covered over recent years. From the doomed acquisition of Kmart to the failed upkeep of current stores, management has pushed away customers. All this providing a dangerous and unsustainable business model.
- Need to reassure investors: Following the fourth-quarter report, Lampert was adamant the company does not suffer from liquidity problems. Although providing a brief sense of security to shareholders, any company that is forced to come out and assure investors the business model is merely surviving cannot be in adequate financial condition.
- Future losses: All companies, even successful ones, can go through rough stretches. However, Sears' rough stretch has the makings of one that will never end. Reporting losses in seven of the past 12 quarters, earnings for the company are expected to decelerate another 9% in 2013.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.