Macy's Stock Trades at Just 10 Times Earnings. There's Only 1 Explanation for Why Macy's Is This Cheap.
Macy's stock is priced at less than 10 times its trailing earnings, making it an oddity in an environment where most stocks are uncomfortably expensive. Investors are pricing in expectations of continued deterioration in its business.
Intelligence analysis by Llama
Macy's shares have fallen in step with the ongoing deterioration of the department store business. The retailer owns much of the prime real estate where its stores are located, but this may not be enough to justify its current market value.
Imagine you own a store where people used to buy a lot of things, but now they just buy things online. You have a lot of money tied up in the store and the land it's on, but it's not making as much money as it used to. That's kind of like what's happening with Macy's.
Analysis
Genuine interest in much of Macy's real estate is apt to be limited. The company must continue nursing its own still-lethargic retail business, which has been shrinking since 2015. Not counting on a turnaround yet, investors are still mostly pricing in the notion that the department store retail business will continue to struggle, and Macy's with it. It's probably not a bad call either.
Key points
- Macy's stock is priced at less than 10 times its trailing earnings.
- The company owns much of the prime real estate where its stores are located.
- Investors are pricing in expectations of continued deterioration in its business.
- Selling the real estate would likely require Macy's to sacrifice the revenue that particular store site generates.
- Shutting down any retail store can be surprisingly expensive.
If Macy's can find a way to turn its business around and start making more money, its stock price could increase. However, this is a big if, and it's hard to say whether the company will be able to do this.
If Macy's continues to struggle and its business deteriorates further, its stock price could fall even more. This is a realistic possibility, especially if the company is unable to find a way to turn its business around.
