Is J.C. Penney's Turnaround Story Fake?

Finding a turnaround stock is very hard. Investors are often tempted by stocks that appear cheap, however, more often than not, there’s a reason why such stocks trade at a seemingly cheap valuation. Hence, when betting on a turnaround, investors are often unsuccessful as the chances of a company turning around its business are very small. However, one company which I believe will turnaround in the long-run is J.C. Penney (JCP).

J.C. Penney’s stock has traded sideways ever since I recommended buying the stock last year. Although the stock hasn’t performed nicely, I think the company’s turnaround is on track and it may perform better going forward.
Here are the reasons why.

Excellent Quarter

Penney recently reported great Q3 results that delivered on prior promises made by the company. Penney’s same-store sales were up 6.4% y-o-y for the quarter, whereas gross margin also increased 70 basis points to 37.3% for the quarter.

Adjusted EBITDA soared 332% to $108 million while EPS also jumped 27% as compared t the corresponding quarter of the previous year. The company also hiked its full year EBITDA guidance by $25 million to $645 million.

All in all, the company’s performance has improved significantly, but the stock has given back all the gains. Despite the stunning improvement in metrics, the stock hasn’t appreciated much since the earnings release.

While this may be frustrating for many investors, I think this is an opportunity for long-term investors to add to their positions. Clearly, the company’s turnaround is on track and the improvement in sales should continue going into 2016. So, long-term investors should see the underperformance as an opportunity to load onto the stock.

Holiday season

The holiday season sales can act as another tailwind for J.C. Penney in the upcoming quarter. There are many signs pointing toward successful holiday seasons sales, and J.C. Penney will be among one of the primary beneficiary of the strong sales.

Strong numbers in the upcoming quarter should kick start J.C. Penney’s recovery, which is why I think it is the right time for investors to add to their positions.


J.C. Penney is clearly showing great signs of progress. However, the stock still hasn’t reflected the progress that the company has made, which is why I think J.C. Penney has a lot more upside potential. Investors should use the recent underperformance to buy more J.C. Penney stock and patiently wait for a turnaround.
Published on Dec 29, 2015
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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