Things are hard enough for retailers in the current cutthroat competitive environment. But for retailers that long ago lost their luster, the outlook can be downright hair-raising. Investors, put on your running shoes and get the heck away from Sears Holdings
I recently recommended a similarly hasty retreat from shares of J.C. Penney
In Sears' latest quarterly results, its loss widened to a whopping $218 million, or $1.98 per share. Revenue fell 5%, suggesting that rivals are eating Sears' lunch. Same-store sales at the namesake Sears locations plunged by 8.2%, and the company's margins are deteriorating, too.
Why investors would pay 29 times next year's earnings for a retail stock so profoundly challenged is beyond me. The last time Sears increased its revenue was the fiscal year ended February 2007. Today, it groans under a debt-laden balance sheet, with $4 billion in obligations and a total debt-to-equity ratio of 48.2%. As its revenue weakness continues to grow, paying off debt becomes increasingly less manageable, creating a very real risk for shareholders.
It's hard to imagine Sears will emerge from this difficult retail environment any stronger than it already is. Indeed, for Sears, it could be all downhill from here.
Try these instead
Investors dead set on retail stocks should instead consider these two candidates. They seem a bit more defensive than Sears, and more importantly, they trade at even cheaper multiples:
Earnings Per Share (TTM)
Revenue Increase/Decrease (TTM)
Total Debt-to-Equity Ratio (TTM)
Cash Per Share
Source: Capital IQ and Yahoo! Finance.
Both of these retailers start with a B, and both look like better bets than Sears. Big Lots is a deep-discount, closeout retailer, while Buckle sells trendy merchandise to teens. Still, both are solidly profitable, boast revenue increases over the last 12 months, and have cash on the balance sheet with no debt.
Even better, both bring to mind that most beautiful of B-words: "bargain." Big Lots trades at less than 10 times next year's earnings, while Buckle trades at 14 times forward earnings.
What do you think? Should investors run screaming from Sears? Do you have opinions on Big Lots or Buckle? Let us know in the comment boxes below.
Costco and Wal-Mart are Motley Fool Inside Value picks. Costco is a Motley Fool Stock Advisor selection. Wal-Mart is a Motley Fool Global Gains 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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
How Costco Is Eating Sam's Club's Lunch
On Jan. 11, Wal-Mart announced plans to close Sam's Club locations across the country. This gives Costco a significant opportunity to gain market share.
No Holiday Reprieve for 2 of the Biggest Retail Train Wrecks
Most department store chains have posted surprisingly strong results for the 2017 holiday season. However, these perennial laggards couldn't capitalize on the uptick in consumer spending.
3 Stocks That Could Put Amazon's Returns to Shame
These three tickers could be better bets than Amazon for new investors right now.