Is JC Penney cheap?
The company gets a new CEO, who happened to be the old CEO, before the current CEO was brought in. Confusing, right? The story with JC Penney is a meandering one, starting with a venerable retail giant coming under assault from online retailers and discount retailers. Bill Ackman, the well known activist investor, took a large position in the company a few years back and started pushing for changes. Those pushes culminated in the hiring of Ron Johnson, the man in charge of building the very successful Apples stores, as CEO.
Mr. Johnson came in with big ideas and a 3-year plan to turn Penney around. Well, I guess it did not work or investors were getting restless! He was fired yesterday and his predecessor, Mike Ullman, was hired back. The stock price dropped about 13%.
The question for investors then becomes: Is JC Penney cheap now? To answer that question, you can look at three different valuations:
Once you get the three values, which one should you use? Depends on who you are (small or large investor, activist or passive investor), what your time horizon is and what probabilities you attach to liquidation and continuing in business!