Some Possible Reasons Behind Recent Correction In Party City

Party City Holdco Inc PRTY corrected as much as 19 percent this month on a confluence of seasonal factors.

By BMO Capital Markets estimates, the retailer registered disruptions to Halloween sales, which generally account for about 20 percent of domestic sales.

BMO considered an emerging seasonal stock weakness, the challenges of a weekday versus weekend holiday, and the potential impact of costume controversies. The store’s “The Wall” product, an adult costume referencing President Donald Trump’s southern border proposal, garnered backlash on social media for being “racist.”

Since the start of the controversy, the stock has waned from $13 to a low just under $11.

At the same time, the stock may have fallen on management silence ahead of third-quarter earnings, “spooky” industry credit card data and the impact of hurricanes on the 14 percent of stores based in Florida and Texas.

Despite the sell-off, BMO upgraded Party City to Outperform with a $16 price target.

“There are still a considerable number of important days until Halloween, but as we discuss our early checks are not pointing to comp-store sales that are falling below expectations nor have we seen unplanned promotions that would suggest broad weakness,” analyst Wayne Hood wrote in a Tuesday note.

Depending on the channel checks’ accuracy, the stock could be headed toward a $9 low or a $17 high, Hood noted.

Shares now trade at a discount to the S&P 500 and at their lowest price-to-earnings multiple since the firm’s 2015 initial public offering at $17.

At time of publication, Party City shares were trading up 7.62 percent at $12.00.

Related Link: Party City In 2017: ‘Healthy Underlying Trends, Numerous Growth Opportunities’