J.C. Penney's (OTC:JCPN.Q) poor performance in the stock market during 2013 continues in 2014. During January, the company's stock has fallen by more than 18%. Looking forward, what could bring this company's stock back up? And how is the company performing compared to leading competitors Target (NYSE:TGT) and Macy's (NYSE:M)? Let's tackle these issues. 

Sales continue to fall
During the third-quarter, the company's revenue dropped by 5.1%. One of the reasons for the decline in sales was the company's decision to close 10 stores. Nonetheless, its average store revenue also fell by 4.2%. The table below summarizes the changes in the company's revenue, operating earnings, and revenue per store in the past quarter. 

In order to reduce the ongoing rise in J.C. Penney's loss per store, it will have to keep closing nonprofitable stores. Improving sales by getting back its clients won't be an easy task, but if its competitors are capable of maintaining steady growth in sales, J.C. Penney should be able to improve its revenue. After all, according to a recent report from the U.S Census Bureau, retail sales were up by 4.3% during the first 11 months of 2013, and clothing-store sales rose by 3.7%. Therefore, if this market continues to expand, J.C. Penney will need to find ways of tapping into growth.  

How has the company performed compared to its peers? 

The table above shows that Macy's revenue increased by 3.3% despite its decision to close a couple of stores during the third quarter. The company's average store revenue rose by 3.6%. This means the company's gain in sales was mostly organic. Moreover, Macy's improved its operating profit by 22%. Target, much like Macy's, also increased its sales by 4% during the quarter. But part of its gain in sales was due to opening a net 16 stores during the past year. 

Another way for Penney to raise earnings is by cutting down its selling, general, and administrative expenses, or SG&A, an issue raised in this Fool.com article. J.C. Penney's SG&A accounted for 37% of its revenue during the third quarter. In comparison, Macy's SG&A as a percent of its revenue is 33%; Target's is 22%. If J.C. Penney were to cut its SG&A-to-revenue ratio to Target's ratio of 22%, it will be enough to turn J.C. Penney's bottom line from red to black. Macy's already announced last week its intentions to cut down its operating costs.

In order to tackle this problem, J.C. Penney's management will have to implement organizational changes. Alas, the company's managerial problems were also an issue that kept J.C. Penney from recovering. Perhaps the recent changes in management will be enough to start steering the company to greener fields. In the meantime, the company's liquidity and debt burden will continue to hang over its head. 

Debt and liquidity
J.C. Penney borrowed $2.2 billion in order to finance its losses back in May 2013. This decision has kept the company from reaching a liquidity problem up till now: Its quick ratio, a metric that measures a company's liquidity by comparing current assets sans inventories to current liabilities, is about 0.5. Other retail giants such as Macy's and Target have a much lower quick ratio of approximately 0.3 and 0.2, respectively. Nonetheless, J.C. Penney continues to have a very high debt burden. Its current debt-to-equity ratio is 2.1. This debt burden is very high compared to its peers: Macy's ratio is 1.3 and Target's ratio is 0.9. Thus, if J.C. Penney doesn't turn a profit in the near future, this situation will raise the company's risk. 

Foolish final thoughts
Based on the above, it seems that J.C. Penney still has a long way to go until it will regain its investors' confidence. I think that if the company was to close nonprofitable stores, lower SG&A, and find ways to get its clients back, these actions might improve its fundamentals. Until then, the burden of proof will be on the company's management.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.