On the heels of an earnings-based plunge of 15.6% on Thursday, shares of arts-and-crafts retailer Michaels Companies (NASDAQ:MIK) sprang back to life with a strong bounce on Friday, rising 9.9% as of 1:50 p.m., EST.
There was no obvious trigger for Michaels' sudden jump just before 11 a.m. EST. A number of mostly negative analyst reports were posted overnight, and the company released a full 10-Q filing for the third quarter -- an hour and a half after the jump. The surge wasn't accompanied by a sudden spike in trading volumes, which could have been a sign of bulk buying action from a large trading house. Even the social media networks were fairly quiet, and I saw no signs of Michaels being discussed in a positive light on cable news networks.
The stock market doesn't always make perfect sense. In this case, it looks like yesterday's selling was a bit too harsh, and today's buyers are snapping up Michaels shares at a rock-bottom price.
The stock is trading at 3.3 times trailing earnings even now, which is a valuation normally reserved for companies headed toward bankruptcy in short order. Michaels may be in a lull at the moment, hoping to spark a turnaround after a few lean quarters, but the company is still profitable. It's true that the $2.7 billion long-term debt load looks heavy next to just $118 million of cash equivalents, but that's a common story in the retail sector.
If you're looking for a potential turnaround play in Wall Street's bargain bin, Michaels might fit the bill. Just remember that turnaround plays are inherently risky investments, so don't bet the entire farm on this wobbly ticker.