The reward potential does not justify the risk involved with JWN’s fundamentals
Luxury department retailer Nordstrom, Inc. (NYSE:JWN) is off 0.4% at $21.41 this morning. The equity has struggled with a ceiling at the $24 level since early January, after a mid-November rally to the $36 area was followed by a number of bear gaps that brought the equity to a Dec. 13, two-year low of $18.94. JWN has also faced overhead pressure at the 60-day moving average, and has shed 46.1% in the last nine months.
Analysts are pessimistic towards Nordstrom stock, with nine of the 11 in question calling it a tepid "hold" or worse. Meanwhile, the 12-month consensus target price of $25.13 is a 17.1% premium to current levels, leaving the security ripe for price-target cuts. Shorts are piling on, too, with short interest up 6.5% in the last two reporting periods. Now, the 19.74 million shares sold short make up a massive 17.7% of the JWN's available float.
The options pits lean firmly bullish, however. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Nordstrom stocks sports a 50-day call/put volume ratio of 2.35 that sits higher than 81% of readings from the past year. This means longs calls are being picked up at a much quicker-than-usual clip.
From a fundamental point of view, Nordstrom stock offers very little security, and virtually no consistency. JWN holds just $262 million in cash and $5.21 billion in total debt, which is over $1.5 billion more than the retailer's market cap of $3.4 billion.
Although Nordstrom’s trailing 12-month revenues have increased 30% since 2021, this number is still down 12% over the past three years. This is due to back-to-back years of sales declines between 2019 and 2021. Similarly, JWN's net income is also down a jaw-dropping 98% since 2019.
Meanwhile, Nordstrom stock offers a compelling valuation, with the stock trading at a forward price-earnings ratio of 9.84, as well as a a price-sales ratio of 0.24. However, the reward potential simply does not justify the risk involved with JWN’s fundamentals.