What Google Can Tell You About Your Retail Investments
Nathaniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Shareholders of J.C. Penney (NYSE: JCP) have done extremely poor in comparison to the broader market over the last couple years. Shares have been cut in half from the highs seen during 2012, and have continued the slide well into 2013. The demise of the company has largely been publicized and reported this year, so I'm going to try and avoid just repeating the same old information. In this article I intend to give a unique indicator that the company's run to the downside may not be over just yet.
The company, under former Chief Executive Officer Ron Johnson, tried to become something they clearly weren't in an attempt to pull in a larger customer base. Unfortunately, the pricing and stylistic changes didn't just fail to bring in new customers, the changes sent lifelong Penney customers to the array of other competitors. The company has attempted to restore itself to its previous incarnation; yet, the customer response has been mixed and rather weak.
In recent weeks I've started incorporating my own unique investment variable into my analysis. Google offers its users the ability to view the search interest trends regarding specific keywords over the last decade. Lets take a quick look at the search interest regarding the keyword "J.C. Penney" on Google:
The chart above shows us the search interest for the company over the last decade, with a score of 100 representing the highest level of recorded search interest. The trend is fairly obvious to the eye, we have to go all the way back to the holiday season of 2004 to find the peak search interest.
The decline in interest was exasperated during the changes of 2012. While search interest isn't a direct predictor of revenues, it would make sense that search interest accurately shows the demand for the company's products. The all time lows seen in search interest is telling me to refrain from a position at this time.
The search interest declines may not be entirely a result of management's terrible decision making abilities. During the decade of slowing interest, we have seen competitors like Amazon.com (NASDAQ: AMZN) and Nordstrom (NYSE: JWN) rise in online popularity. Lets first take a look at the search interest regarding the keyword "Amazon" on Google:
For the last decade interest has steadily risen with the typically seasonality related spikes. As I'm sure most of us are already aware, Amazon sells everything from all ends of the retail spectrum. One could attributed the rising demand and revenues to the growth of e-commerce market. According to Zack's Research, analysts are expecting the company to grow its earnings by over 300% this year, followed by 120% growth next year. While not a value play, Amazon remains the premier investment vehicle for exposure to the e-commerce market.
Next, I wanted to highlight the search interest for Penney's higher end counterpart, Nordstrom, another retailer I'm sure most of us are already familiar with.
While off it highs currently, the search interest for the keyword "Nordstrom" has followed a strong path upward over the last decade with all time highs seen during the last holiday season. I feel an investment in Nordstrom would give investors better exposure to the recovering economy as the company tends to sell higher priced, more elastic goods compare to Penney. Nordstrom trades at a more attractive valuation with a PEG ratio of 1.4 and earnings growth estimated at 11.50%.
While J.C. Penney's management has struggled as of late, the search interest for the company has been in a steady decline for almost a decade. While I cannot give a direct correlation between search interest and revenues, it would be a logical to assume that as consumers increasingly use the internet for commerce, search interest will more accurately show true demand. Search interest has continue to hit lower lows as of late, leading me to my cautious stance.
Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!