Drop the shopping bag and run for the hills. Despite its deceptive rise, investors should want nothing to do with the lurking danger that is J.C. Penney (NYSE: JCP).

Retail smackdown
The retail space is fiercely competitive, and when even mighty Wal-Mart's (NYSE: WMT) having problems juicing up domestic sales, investors should enter this scary segment at their own financial peril. A pile of formidable competitors already battle for consumers' dollars, including Target (NYSE: TGT), Costco (Nasdaq: COST), and Family Dollar (NYSE: FDO).

So why on earth have J.C. Penney shares increased by about 39% in the last three months? Call it the Ackman Angle: Famous shareholder activist and hedge fund manager Bill Ackman has bought a huge stake in J.C. Penney. But let's face it -- he's not infallible. Ackman's major stake in Borders Group (NYSE: BGP) hasn't helped the long-suffering bookseller any.

Some reasons to run
Financially, J.C. Penney has a few negative attributes to consider:

  • It hasn't reported an annual revenue increase since the year ended February 2007.
  • In the last two fiscal years, J.C. Penney's earnings decreased by 48.5% and 56.1%.
  • Its total debt-to-equity ratio of 63.4% in the last 12 months rests at an uncomfortable level, given flagging revenues and cutthroat discount competition going forward.
  • It's trading at 26 times earnings, which sounds extremely high, since stronger rivals are trading at cheaper multiples (almost half that in Wal-Mart's case).

Try these instead
You don't even have to leave the retail realm to find safer stock ideas:

Company

Earnings Per Share (TTM)

Revenue Increase/Decrease (TTM)

Total Debt-to-Equity Ratio

Cash Per Share

Costco $2.92 9.1% 20% $10.87
Family Dollar $2.62 6.3% 17.6% $3.87

*All data from Capital IQ and Yahoo! Finance.

Both Costco and Family Dollar are solidly profitable, with impressively increasing sales. Their debt's also quite manageable, and they've both got plenty of cash on the balance sheet. Both cater to the "new normal" of deal-craving consumers.

Costco and Family Dollar also trade at cheaper multiples than J.C. Penney; Costco commands less than 22 times earnings, while Family Dollar's trading at a P/E of 17.

Just don't do it
Like Sears Holdings (Nasdaq: SHLD), which I recently decided wasn't a buy, J.C. Penney faces a daunting collection of rivals in an economically difficult climate. Is J.C. Penney even that relevant anymore? Its years of lackluster revenue figures give good reason to believe it's not.

Would you invest in this stock? If you think it's wrong to flee from J.C. Penney shares, or if you agree that investors should beat feet away from this retailer, let us know in the comment box below.

Costco and Wal-Mart are Motley Fool Inside Value picks. Costco is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Costco and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool has a disclosure policy.