Is JCP a buy?

Amid the highly publicized turnaround of JC Penney’s, is the stock a buy?  Virtually all news outlets have been running negative stories about the company and many debt analysts have predicted that the floor for the stock could be very low.  Trading roughly around 7 dollars per share currently, the big question is how low the stock could go.  With the company losing 16.2B in market cap since 2007 and a projected 1B dollar loss in sales for 2013, it would seem that the stock has not hit rock bottom yet.   A large risk for potential and current investors is whether or not this floor is going to end in bankruptcy.  JCP seems to be caught in a cyclical downturn due to inventory problems.  Poor selling in Q1 and Q2 of 2013 have left the company with a surplus of inventory, which is frequently being sold at high discounts, and in turn squeezing the profit margin out the door.  The heavy discounting that has been in place at JCP stores has discouraged investors and a sell order is out on the stock from many financial analysts.  

To add to the turmoil, JCP severely confused investors over their efforts to raise 800 million in a secondary offering recently.  The confusion came about because CEO Mike Ullman stated only one day before the offering became public that JCP was sufficiently liquid and did not need to raise capital.  In response, stockholders have filed lawsuits due to the corporation failing to reveal its liquidity.  As noted, Mike Ullman stated a day before the secondary offering that their liquid structure was fine.  However, the 785 actually raised from the secondary offering will support their operations activities for the next two years.  I can see why investors would think they are being mislead.  Oh wait, I am not quite done yet with this secondary offering.  Goldman Sachs underwrote this offering, while, at the same time, Goldman Sachs analysts published that investors should be wary of a JCP defaulting.  Ouch!  

The holiday season will be a huge test for JCP and likely be the defining point for the company. Analysts are predicting this holiday season to be a discounting war from competitors Macy’s and Kohl’s.  This news is bad for the company, as this price war will continue to squeeze its gross margin.  If these margins get squeezed, JCP could burn through some of its liquidity in efforts to cover operating expenses.  This could end up putting JCP into the familiar situation that they are currently trying to dig themselves out of.  The company reports that it has enough capital to cover its operating expenses through 2015, but a poor holiday performance with low margins could shorten this projection.  

So, where is this floor?  Should I buy?  I believe that the floor has not been hit yet.  If the company was to liquidate to assets currently, it would be worth 324 million, or 1 dollar per share.  The holiday season will sink or swim for the company.  Expect shares to plummet if they do not meet sales expectations during the holiday season or if they are forced to cut down their margins again.