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Why Michaels Shares Jumped On Friday

By Anders Bylund – May 8, 2020 at 3:41PM

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The arts-and-crafts retailer saw one of its largest investors take an even larger position.

What happened

Shares of arts-and-crafts supplies retailer Michaels (MIK) rose as much as 15.3% on Friday, peaking just before 3 p.m., EDT. On a generally positive day for the stock market as a whole, Michaels got an additional boost from an SEC filing that showed investment management firm BlackRock (BLK -3.67%) increased its already-huge ownership of the company.

So what

The SEC filing showed BlackRock owning 14.9 million shares of Michaels at the end of April 2020. That's up from 12 million shares and an 8.1% ownership stake in the previous month. BlackRock's increased investment amounts to a vote of confidence in this deeply troubled retailer.

Two hands holding up different pieces of yellow and blue crafting materials.

Image source: Getty Images.

Now what

Even after Friday's strong jump, Michaels stock is trading 66% lower in 2020 and 76% lower over the last 52 weeks. The COVID-19 crisis arrived at a difficult time for this company, whose revenue and cash flows have been trending steadily lower since 2017.

MIK Chart

MIK data by YCharts

The company even tried to dodge the health crisis by declaring itself an "essential retailer" in March. That gambit didn't last long, but it undermined my formerly positive view of Michaels' management team. BlackRock seems to disagree with my negative assessment here, picking up nearly 3 million additional shares at multi-year lows. Is it a calculated gamble, a preliminary move toward a hostile takeover, or simply a big bet on an eventual return to healthy growth? I don't know, but I would hesitate to follow BlackRock's example here.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends The Michaels Companies. The Motley Fool has a disclosure policy.

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