Why Party City Stock Rallied 15% in Early Trading Today


What happened

Shares of specialty retailer Party City Holdco (NYSE:PRTY) rose as much as 15% in the first 90 minutes of trading on May 10. The company’s pre-market earnings release was the driver. And despite the company losing money in the fiscal first quarter of 2021, investors seemed to like what they read.  

So what

Sales at Party City increased a touch over 3% year over year in the first quarter, however, comparable-store sales rose a huge 36%. On an absolute basis, Wall Street was looking for revenue of about $405 million, which the retailer’s $427 million top line easily beat. On the bottom line Party City reported an adjusted loss of $0.05 per share. That, too, beat analyst estimates, which had been calling for an adjusted loss of $0.18 per share. Investors tend to react positively when a company beats expectations in dramatic fashion, so the stock advance makes sense.  

An arm pointing to graph on computer screen.

Image source: Getty Images.

The big story here is, as you would expect, tied directly to the coronavirus pandemic. As Party City’s name implies, it is highly targeted toward events — the kind that bring people together into close proximity. Social distancing during the ongoing pandemic has not been conducive to business. So the huge rebound in same-store sales and the modest overall top-line gain are actually pretty positive signs of improvement. Meanwhile, management said second-quarter 2021 sales should continue to improve, hitting a range of between $475 million and $490 million, with net income falling somewhere between $10 million and $20 million. Given the headwinds over the past year, hitting even the low end of the company’s guidance would be a decent outcome.     

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Now what

Although the news was pretty good today, long-term investors need to take today’s stock bounce with at least a small grain of salt. Party City’s shares are up more than 1,400% over the past year. That’s a huge move in a relatively short period of time and it suggests that expectations are high. True, Party City lived up to those expectations today, but if it should fall short in the future investors might turn negative on the name. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/05/10/why-party-city-stock-rallied-12-in-the-first-hour/

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