Why These Companies Appear To Be Dangerous

Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

People can shop at a lot of places, and often times can find better deals by shopping around. Any outlet mall has clothing lines that offer a variety of clothes, but many times these don't offer the most bang for your buck. More times than not, it pays to shop around, especially with your investment capital.

The Bad...

In the area I am from, Kohl's (NYSE: KSS) is often viewed as the clothing store with the most value. Yes, there are several other options available, but Kohl's provides the same clothes for a cheaper price most of the time. With assets decreasing, and liabilities increasing, Kohl's equity has taken a substantial hit. Meanwhile, their revenues increased approximately 2% this year as well. Capital expenditures also increased by 22% in 2012. Interestingly, Kohl's stock holders have seen more than an 8% loss in 2012, and 16% in the last quarter. Maybe we should shop around and find a better deal. 

JC Penney (NYSE: JCP) seems to be focused more on the future than Kohl's or The Gap as it dumped money into capital expenditures, 28% more than in 2011. Retail stores seem to all have done horrible in the last quarter of the year, as Penney's stock is down 22%, and over 45% for the year as a whole. Interestingly, JC Penney might be a company to watch, as its free cash flow (FCF) doubled over the period of the year. Impressively, they were able to do this despite losing 3% of revenues over the year. However, even with doubling their FCF, its FCF yield is still less than 1%. Like Kohl's, JC Penney's net worth remained level. Though it may not be wise to buy this stock now, investors might want to keep an eye on it. 

The Better...

These retail stores don't seem to be doing very well, but maybe the most popular of all will distort the trend. Wal-Mart's (NYSE: WMT) stock has performed better short term than any of these companies as it has only lost 10% in the past quarter. This is still not a glowing report. Wal-Mart posted a 5% increase in revenues (more than any of the other companies discussed) which means they brought in over $471 billion in sales. With a 6% increase in capital expenditures, Wal-Mart did show a slight decline in FCF. This could be the best retail company to invest in yet.

The Gap (NYSE: GPS) is another store that most people trust while shopping at. At first glance, Gap doesn't seem to be doing much better than Kohl's. In the last quarter, Gap's stock price has also fallen 15% and its 2012 revenues have fallen by 1% as well.  Gap has not lost value to its net worth however, as it has remained level. Although Gap's capital expenditures have decreased by nearly 2%, over the period of the year, its stock increased by a remarkable 72%. Gap seems to be in a better position than Kohl's at this point. 

The Best...

With increases in most of the major areas, Amazon (NASDAQ: AMZN) shows why E-commerce companies are performing well. It’s hard to compete with a company that provides convenience, quality, variety, and competitive prices. With its revenues increasing over 31%, it becomes the only company we have discussed to post a stock increase in the last quarter. Amazon's stock increased over 7% last quarter and 47% over the past year. With its capital expenditures nearly doubling, its FCF declined by 20%. Below is a chart showing how these companies have performed in the past three months. 

<img src="http://media.ycharts.com/charts/c9494a56443427a4a2b3dbc9365ff880.png" />

KSS data by YCharts

The Foolish Conclusion...

When looking at the facts and reviewing the charts, it doesn't look promising for investors buying into the retail industry. Amazon and Wal-Mart are the only two companies that might be worth looking into. JC Penney shows that it might be turning around, though probably not for some time. Amazon does appear to be in the best position, as it continues to hold a durable competitive advantage that none of these other companies have. With the ability to market all the same products, at a competitive price, from the convenience of your own home, it’s hard to beat. Regardless of what happens with any of these companies, always remember, it’s worth shopping around.

tlwofford 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!

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