The share price of Myer Holdings Ltd (ASX: MYR) has crashed to a fresh record low in afternoon trade – pricing the stock at a deep discount to consensus valuation.
This has to spark the question if the embattled department store is poised to become the biggest comeback kid in the retail sector this year.
The stock tumbled another 10.1% in after lunch trade to hit 35.5 cents, which is a 29% discount to the average broker price target of 50 cents a share.
Myer has now lost more than two thirds of its value over the past 12 months compared to a 3% gain by the All Ordinaries (Index:^AORD) (ASX:XAO).
This excites the bargain hunter in me and surely there must be eager buyers in the market waiting to pounce – outside of Premier Investments Limited (ASX: PMV), which has given Myer more than a few wanton stares.
I would normally be tempted to roll the dice and take a position in Myer given its strong brand equity, which must be worth something to the right group, but the company is sailing too close to the wind for my liking.
I remember buying shares in Fairfax Media Limited (ASX: FXJ) right after getting off a phone interview with a prominent investment strategist who told me that Fairfax was "un-investable at any price". This was in late 2012 when I was a journalist at the Australian Financial Review.
I bought the stock, which in hindsight turned out to be pretty close to its bottom, because I realised at that moment that sentiment towards my then employer was so negative that it became divorced from reality.
At the very least, there is intrinsic value in the brands under its umbrella, not to mention the fledging online investments it is making.
But Myer isn't Fairfax despite its strong branding, in my opinion. The biggest problem facing Myer isn't so much that it doesn't yet have a credible strategy or chief executive to turnaround the sinking ship that revealed a $476 million net loss hole for the six months ended January 2018 (I can live with both), but its lack of time.
The clock is ticking on Myer's debt bomb and I worry that the retailer will soon breach its debt covenant – maybe not in the next six months, but one would think the chance of this happening in the next 12 months or so is high if Myer can't find a way to break from its profit downtrend.
Myer has around $420 million in debt due in August 2019.
This is like a noose around its neck. Even if there was a bidder with deep pockets dead keen on buying the retailer along with all its debt and long lease liabilities, it wouldn't pay anything close to "fair" value as they would know Myer is caught between a rock and a hard place.
And this is the worse position any management team can find itself.
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