Despite being a leader in the party goods segment, Party City Holdco Inc. (NYSE: PRTY) finds itself in a tough financial position with talks that the company could be filing for bankruptcy in the coming weeks. Following the release of this news, PRTY stock plummeted by as much as 60% – sending the stock to new all-time lows. However, since the stock was a part of the meme movement, PRTY stock attracted many retail investors at its beaten down PPS which has led the stock to soar by as much as 92%. While bankruptcy could be imminent for the company, PRTY stock has the potential to become a profitable trade considering that bankruptcy plays have been gaining momentum recently.
PRTY Stock News
As a premier party supplies retailer, PRTY is the go-to retailer for consumers when it comes to party supplies thanks to its wide range of products for all kinds of parties. While the company has a wide consumer base, PRTY has been hit hard by the pandemic as the stock dropped to substantial lows as demand for its products tanked due to the pandemic’s restrictions that limited parties. However, PRTY was able to emerge from the pandemic’s impacts and managed to produce impressive results once the pandemic restrictions started to ease – with the stock climbing past $11 in 2021.
However, 2022 has not been kind to the company as PRTY stock dropped more than 96% as a result of several unfortunate circumstances. Considering the macroeconomic conditions of high inflation rates, consumer demand for PRTY’s offerings has been severely affected as its products could be considered to be a luxury for many consumers. As a result, PRTY’s reported significantly weaker sales compared to its peak in 2021. At the same time, supply chain woes affected PRTY especially the helium shortage which the company requires to fill party props like balloons. With the company’s core business under substantial pressure thanks to these circumstances, many investors have been speculating a potential bankruptcy could be in play for PRTY.
Considering PRTY’s mounting debt of more than $1.3 billion, the company has been largely impacted by the Fed’s efforts to curb inflation by raising interest rates. In this way, PRTY has to allocate more funds to make its interest payments. As the company is witnessing declining demand for its offerings, the increased financial pressure on the company has left PRTY in a gloomy financial situation. With this in mind, it has been reported that PRTY could be preparing to file for bankruptcy within the coming weeks to restructure its balance sheet – in a move that could see its creditors take ownership of the company.
According to this report, PRTY has hired Alixpartners as a restructuring advisor and is currently in talks with bondholders to convert their debt into equity. However, these efforts are reported to be failing since the creditors are first lien which gives them priority in receiving the company’s assets in case of a bankruptcy filing. Meanwhile, PRTY is looking to save costs by laying off 19% of its workforce and closing a number of its 760 stores throughout the US.
In light of this report, PRTY stock plummeted more than 60% overnight as investors try to salvage their holdings. However, this dip has made PRTY stock to many traders as bankruptcy plays have been hot lately. For this reason, PRTY stock soared by as much as 67% and is gaining momentum across Fintwit and Reddit investors as a potential short squeeze could take place. On that note, PRTY has a short interest rate of 17.7% and 21.1% of its float is on loan according to Ortex data. While a short squeeze may not occur, the growing interest in bankruptcy plays could see PRTY stock climb over the coming weeks in the lead up to the company’s potential chapter 11 filing.
PRTY Stock Financials
Looking into PRTY’s Q3 earnings, the company has $2.8 billion in assets including $29.8 million only in cash. Meanwhile, PRTY has $3 billion in liabilities which include $1.3 billion in long-term debt. As for revenues, PRTY reported a slight decline as it realized $502.1 million compared to $510.1 million in the same year ago period. As a result, PRTY reported an operating loss of $153.5 million compared to an operating income of $20 million last year. However, this operating loss is largely impacted by $133 million reported as a goodwill impairment. In light of the company’s declining sales and rising expenses, PRTY reported a net loss of $372.9 compared to $2.7 million in the same period last year. Based on these numbers, the reports regarding a potential bankruptcy filing could be true – making PRTY stock an intriguing trade to watch over the coming weeks.
Media Sentiment
@GoldmanBanker expected PRTY’s recent run upon the reports about its potential bankruptcy.
Technical Analysis
PRTY stock is currently trading at $.2072 and shows supports near .1802 and .15. The stock also shows resistances near .2964 and .4060. Following reports that the company could file for bankruptcy in the near future, PRTY stock plunged 60% due to the sell-off on the report. However, PRTY appears to have found a bottom at $.15 as the stock rebounded significantly from that price level by as much as 67%. Given that bankruptcy plays have been gaining momentum recently, PRTY stock could be set to continue running in anticipation of more news regarding the potential bankruptcy filing.
After retesting its resistance, PRTY dropped near its support as it appears to be filling the gap on the chart near the support. However, the stock is witnessing increased attention from investors which could see the stock further run before filling this gap. Based on this, investors could enter a starter position at the current PPS and average up as the stock moves. With this in mind, PRTY stock is extremely risky at the moment so investors could set a stop loss right below the support to manage their risk.
In light of the recent report regarding PRTY’s potential bankruptcy, accumulation is trending downwards due to the sell-off on the news as the stock may not have much value in the case of bankruptcy. Similarly, the MACD is bearish but a crossover appears to be approaching. The RSI climbed from 12 to 35 indicating that PRTY stock remains slightly oversold. With the stock gaining momentum recently, PRTY could be poised to continue running in the near term. PRTY has an OS of 113.3 million and a float of 87.4 million so it could soar if it witnesses strong buying activity.
PRTY Stock Forecast
While a potential bankruptcy could be the solution for the company’s financial woes, PRTY stock is an intriguing trade as bankruptcy plays have been running lately. Since reports indicate that the company could file for bankruptcy within the coming weeks, PRTY stock has the potential to continue running until the company shares updates regarding that matter. However, if the company does not file for bankruptcy, PRTY stock could be one to watch as the company works to climb out of its current struggles as it did following the pandemic.
If you have questions about PRTY stock and where it could be heading next feel free to reach out to us in our free alerts room!
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