Pocket 28% Profits On J.C. Penney

| About: J.C. Penney (JCP)

I first recommended to sell the shares of J.C. Penney (NYSE:JCP) short on February 14th. This is what happened to the stock since we initially shorted it:

We had a few arguments to back our short recommendation.


Metric/ Company J.C. Penney Kohl's Corp (NYSE:KSS) Macy's (NYSE:M) Sears Corp. (NASDAQ:SHLD) Target (NYSE:TGT) Wal-Mart (NYSE:WMT) Costco (NASDAQ:COST)
P/E N/A 11.5 13 N/A 12.2 13 24
PEG Ratio 1.2 0.78 0.9 -0.6 1 1.4 1.7
Price/Book 1.8 1.9 2.6 0.7 1.3 2.8 2.9
Price/Sales 0.4 0.6 0.6 0.12 0.14 0.45 0.38

At a price of $42, J.C. Penney was riding on fumes. It was very expensive, both in absolute terms and compared to its peers. At a price of $33, that is not the case anymore. It is very fairly priced.

Please mind the GAAP

Since last December, the company ceased to report a very important Non-GAAP gauge, called- "Same Store Sales" (SSS) or "Comparable Store Sales" (NYSE:CSS), which represents the growth (or the lack of) of sales compared to the previous quarter. This metric serves as an indication of what the company is likely to report next quarter. To simply stop reporting this important metric can never be a good sign.

We initially aimed at riding the stock from $42 all the way down to $31 but I am beginning to sense that the company is starting to receive some positive headwinds. Macy's just reported earnings last night, although its profits jumped by 38%, its outlook disappointed and shares fell. Same thing happend to Kohl's today. when it missed earnings. J.C. Penney, with its new strategy, suddenly begins to appear as a potential jewel to retail fans. We will not stand in their way.

My recommendation

Considering the upside turnaround potential for JCP, there is simply no reason not to pocket our 28% profits. We earned it. We will buy to cover our remaining 50% of our original position at current prices and close our position.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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