Card Factory shares are on the rise. This is what i do

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Card factory (LSE: CARD) stocks are up. The stock has risen over 15% in the past month and 120% in the past 12 months. Past performance is no guarantee of future results, of course, but the increases are impressive nonetheless.

So what is behind the rise in stock prices? I see two main reasons, which I will discuss here. But despite the good performance of Card Factory shares, I remain cautious about the stock. For now, I will continue to monitor the share price.

# 1 – liquidity update

Card Factory suffered from the pandemic and earlier this year concerns were expressed about its liquidity situation. He announced in January that he might breach his loan terms, which set the alarm bells ringing for me.

Since then, Card Factory has been giving investors regular updates on cash. Last week, the company provided another such announcement in a fairly short release. I expected more details to base my investment case, but I was unfortunately disappointed.

Card Factory has indicated that it continues to have “constructive discussions ” with its banking union. This “favorable” banks have “provided additional waivers with regard to anticipated breaches of commitments until April 30, 2021 ″.

In other words, the banks have left some leeway to Card Factory for its loans until the end of April. I think it’s worth pointing out that these financial institutions previously gave the company leeway until the end of March. The banks have therefore pushed back the liquidity problem a little.

At this point, this vague announcement of liquidity doesn’t give me much information. I think banks are still waiting for stores to open on April 12 to do a full balance sheet.

Without further clarity on the refinancing, I will take a wait-and-see approach with Card Factory shares for now.

# 2 – Reopening

The second reason I think Card Factory shares are soaring is due to its stores reopening on April 12. Prime Minister Boris Johnson confirmed over Easter weekend that the UK is set to reopen parts of the economy next week.

This is good news for Card Factory stocks. The company has over 1,000 stores and the reopening means it can resume operations. I don’t expect sales to immediately return to pre-coronavirus levels, but at least it’s a start.

The hope of returning to some sort of normalcy after the lockdown gave a boost to the course of the action. But I am wondering how long this can last, although I think in the short term Card Factory shares will rise when the trade reopens.

My opinion on Card Factory shares

What I’m really waiting for is a realistic long-term plan for Card Factory. So far, the company has tackled short-term issues.

As I mentioned before, I would like more information on refinancing in order to make my investment decision. I think it’s worth pointing out that it depends on how well the stores perform when they reopen.

I’ll have to wait and see if the company’s value proposition still resonates with customers, especially once people get used to ordering online. That’s why I’ll be watching Card Factory stocks like a hawk over the next few months.

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Nadia Yaqub has no position in any of the stocks mentioned. The Motley Fool UK recommended Card Factory. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.

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