Should One Invest or Dissociate from Macy's Shares at a Price Point of $16?

Trade Macy's Shares for $16: Buy or Sell?

In the world of retail, Macy's (NYSE: M) has been facing challenges. The department store chain presents a combination of low valuation, weak growth, and very weak profitability. Despite this, Macy's stock has seen a significant surge, increasing by 37% over the past month.

The company's growth has been sluggish, with revenues declining at an average annual rate of -4.4% over the last three years. This trend is reflected in Macy's Q2 2025 financial results, where the company reported a 4% decrease in revenue year-over-year, amounting to $5.6 billion. The net income for the same quarter also took a hit, dropping 22% year-over-year to $210 million.

The decline in sales trends and increased promotional efforts have affected Macy's free cash flow, which decreased to $120 million in Q2 2025. The company's balance sheet shows $3.9 billion in debt compared to $800 million in cash, indicating a heavy reliance on borrowing.

However, Macy's struggles are not unique. During the 2020 Covid pandemic, the company's stock fell 75.5%, while the S&P 500 fell 33.9%. The retail giant has also faced ongoing weakness in core apparel and home categories, although digital sales and luxury brands have shown some resilience.

In contrast, the Trefis Reinforced Value (RV) Portfolio, which focuses on undervalued stocks with strong fundamentals, strategic sector allocation, and effective risk management, has consistently outperformed its all-cap stocks benchmark. The RV Portfolio maximizes gains during positive market trends and minimizes losses during downturns, providing strong returns to investors.

Macy's trades at a price-to-earnings ratio of 8.1, lower than the S&P 500's 23.9. This undervaluation is also reflected in the company's free cash flow to market value ratio of 17.8, below the S&P 500's 21. Cash constitutes only 5.8% of Macy's total assets, lower than the S&P 500's 7.2%.

The RV Portfolio's quarterly adjusted allocation responds effectively to market conditions, and its performance metrics detail the portfolio's effectiveness. In recent years, the Trefis Reinforced Value Portfolio achieved higher returns than the all-cap common equity index, even during challenging periods such as the 2022 inflation crisis, where Macy's stock dropped 71.7%, while the S&P 500 dropped 25.4%.

In conclusion, while Macy's is currently grappling with weak growth and profitability, the company's stock has seen a recent surge. However, the retail giant's financial performance, particularly in terms of revenue and net income, has been disappointing. The Trefis Reinforced Value Portfolio, on the other hand, has shown consistent outperformance, making it an attractive option for investors seeking strong returns.