Party City (PRTY) is 16% lower today after the company reported fourth-quarter results. Earnings per share (EPS) of $1.08 vs. $0.81 was just $0.01 short of expectations. Sales growth of 2% fell short of expectations of 3.6%, which the company attributed to the continuing shortage of helium. Party City had to slash corporate expenses to come close to making the estimate.

The helium issues, along with some gross margin compression, will continue to negatively impact results in 2019, especially in the seasonally weaker first half of the year. This led the company to guide 2019 EPS to $1.61 vs. $1.72, compared to expectations of $1.85 and the $1.61 the company earned in 2018. While this does represent growth for the year, the guidance is still disappointing in light of the fact that Halloween occurs on Thursday this year, which is more favorable for sales than the middle of the week on Wednesday in 2018.

If there was any good news from the quarter, it is the fact the helium issue will anniversary in the third quarter, and thus not hurt comparisons as much. In addition, after frankly wasting capital on massive share buybacks in recent years, the company is now going to concentrate on reducing its $1.86 billion in net debt, which the market should reward. With the stock trading at 6.5X EPS the midpoint of EPS guidance, with underlying trends save for helium stable, the stock is too cheap.

Continue to buy PRTY under $10.50. My target is $16.00.

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