Breaking down Pier 1 volatility decline

This perspective is geared to all Pier 1 insiders as well as to investors considering exiting their position in the firm. I will focus on the cause of why it is still reasonable for the firm to generate above-average margins and lots of cash flow. Assuming the 30 trading days horizon, Pier 1 is expected to generate 15.45 times more return on investment than the market. However, the company is 15.45 times more volatile than its market benchmark. It trades about 0.11 of its potential returns per unit of risk. The market is currently generating roughly 0.09 per unit of risk.
Published over a year ago
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Reviewed by Vlad Skutelnik

Pier 1 classifies itself under Consumer Cyclical sector and is part of Specialty Retail industry. This firm has accumulated 992.2 M in total debt. The company has a current ratio of 0.78, indicating that it has a negative working capital and may not be able to pay financial obligations in time and when they become due. Pier 1 holds a negative application of asset of -14.06 pct., losing $0.1406 for each dollar of asset held by the company. Inadequate asset utilization implies the company is being less effective with each dollar of asset it holds. Put it differently asset utilization of Pier 1 Imports shows how discouraging it operates for each dollar spent on its asset.

How important is Pier 1's Liquidity

Pier 1 financial leverage refers to using borrowed capital as a funding source to finance Pier 1 Imports ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Pier 1 financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Pier 1's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Pier 1's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Pier 1's total debt and its cash.

Pier 1 Correlation with Peers

Investors in Pier can reduce exposure to individual asset risk by holding a diversified portfolio of assets in addition to a long position in Pier 1 Imports. Diversification will allow for the same portfolio return with reduced risk. The correlation table of Pier 1 and its peers is a two-dimensional matrix that shows the correlation coefficient between pairs of securities Pier is related in some way. The cells in the table are color-coded to highlight significantly positive and negative relationships. Each cell shows the correlation between one pair of equities and can be used to run pair trading strategies or create efficient portfolios with your current brokerage. Please check volatility of Pier for more details

A Deeper Perspective

Pier 1 defends 638.68 k market capitalization. Pier 1 Imports reported revenue of 1.39 B. Net Loss for the year was (310.02 M) with profit before overhead, payroll, taxes, and interest of 450.9 M. Pier 1 is selling for under 0.15. That is -11.76% down. Today the lowest price is 0.14.

Pier 1 price decline is reassuring

Recent market risk adjusted performance indicator falls down to -0.96. Possible price boost? Pier 1 Imports is showing large volatility of returns over the selected time horizon. We encourage all investors to investigate this asset further to make sure related market timing strategies are aligned with all the expectations about Pier 1 implied risk. Pier 1 Imports is a potential penny stock. Although Pier 1 may be in fact a good instrument to invest, many penny otc stocks are speculative in nature and are subject to artificial price hype. Please make sure you totally understand the upside potential and downside risk of investing in Pier 1 Imports. We encourage investors to look for the signals such us email spams, message board hypes, claims of breakthroughs, volume upswings, sudden news releases, promotions that are not reported, or demotions released before SEC filings. Please also check biographies and work history of current and past company officers before investing in high volatility instruments, penny stocks, or equities with microcap classification. You can indeed make money on this equity instrument if you perfectly time your entry and exit. However, remember that penny stocks that have been the subject of an artificial hype usually unable to maintain its increased share price for more than just a few days. The price of a promoted high volatility instrument will almost always revert back. The only way to increase shareholder value is through legitimate performance backed up by solid fundamentals.

Despite other companies in specialty retail industry are either recovering or due for a correction, Pier 1 may not be performing as strong as the other in terms of long-term growth potentials. To sum up, as of 8th of July 2020, we see that Pier 1 moves completely opposite to the market. The firm is overvalued with quite high odds of financial turmoil within the next 24 months. Our present 30 days buy-hold-sell recommendation on the firm is Strong Sell. With a less-than optimistic outlook for your 30 days horizon, it may be a good time to trade some or all of your Pier 1 holdings as it seems the potential growth was already fully factored into the current price. Please use our equity advice module to run different scenarios to ensure your current risk level and investment horizon are fully reflective of your current investing preferences in regards to Pier 1.

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Editorial Staff

This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Ellen Johnson do not own shares of Pier 1 Imports. Please refer to our Terms of Use for any information regarding our disclosure principles.

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