Having just issued three press releases in two day, the media relations department at J.C. Penney (JCP) is arguably the ailing department store's most functional division. The latest announcement from Plano, Texas shows that an unexpected secondary offering of 84-million shares was priced at $9.65 per share, which was also below the market price at the time it was announced.
While the stock sale will net the company close to a billion dollars that it can use for general corporate purposes, it also dilutes the stock by at least one-third, and sent it plunging to levels last seen since the '80s.
"It's exactly why you never want to catch these falling knives," says Jonathan Hoenig of CapitalistPig.com in the attached video. "Just when you think a weak stock can't go any lower, it does, time and time again."
The point is, if you're thinking about getting in early on the comeback story of the year, Hoenig says don't do it and points to all the bottom fishers over the last five years who have lost money doing exactly the same thing.
At the same time, Hoenig says J.C. Penney also isn't the kind of stock or situation that he thinks makes for a good short idea either.
"I'd certainly rather be short than be long," he says, "but investors, in my mind, aren't very well served by going after these names that are very much in the news," adding that "long or short doesn't make sense for me right now."
While some, including CEO Mike Ullman, have asked investors to be patient while the company's turn-around takes shape, Hoenig says the lower and lower price action has to be respected since it suggests there's still no demand for the story or the stock.
"To turn around in the long-term, J.C. Penney has to start by turning around, at least a little bit, in the short-term," he says.
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