Funds have dumped Radio Shack (NYSE:RSH) for the past two years straight starting since early 2010 when it was trading close to $25 a share. There was debate about the stock at the end of last year when it fell to $10 but that debate seems to have ended as the stock is now trading below $5 a share. A number of things have gone wrong for the company including disappointing earnings as sales in RSH's retail outlets have been steadily falling.
The company has been reacting swiftly and just last month placed new plans in place to improve the company's performance, including: 1) an ongoing, purposeful shift to mobility; 2) reclaiming relevance and maximizing profits in the signature platform; 3) pursuing incremental growth opportunities.
The valuation metrics suggest that the stock is about fairly valued but there may be more to the story. RSH's P/B ratio has averaged 2.3 over the past 5 years, and now it is only 0.6 suggesting that investors are really bearish on the stock but this also suggests that we may be at a point where the assets are worth more than the value of the company. Trading at a 40% discount to asset value suggests significant downside protection, and in case of a turnaround, significant upside back to previous trading ranges. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Radio Shack's trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the valuation metrics compared to their 5 year averages. Radio Shack's current P/B ratio is 0.6 and it has averaged 2.3 over the past 5 years with a high of 5.5 and low of 0.8. Radio Shack's current P/S ratio is 0.1 and it has averaged 0.5 over the past 5 years with a high of 1 and low of 0.1. Radio Shack's current P/E ratio is 17 and it has averaged 11.8 over the past 5 years with a high of 28.8 and low of 5.7.
Price Target: The consensus price target for the analysts who follow Radio Shack is $6. That is upside of 17% from today's stock price of $4.74 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: Radio Shack is currently trading at about $5 a share with analysts expecting EPS of $0.39 next year, an earnings increase of 30% y/y, for a forward P/E ratio of 12.2. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Best Buy (NYSE:BBY) is currently trading at about $18 a share with analysts expecting EPS of $3.72 next year, an earnings increase of 4% y/y, for a forward P/E ratio of 4.9. HHGregg (NYSE:HGG) is currently trading at about $10 a share with analysts expecting EPS of $1.24 next year, an earnings increase of 14% y/y, for a forward P/E ratio of 7.9. Target (NYSE:TGT) is currently trading at about $56 a share with analysts expecting EPS of $4.86 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 11.5. The mean forward P/E of Radio Shack's competitors is 8.1 which suggests that Radio Shack is overvalued relative to its publicly traded competitors.
Earnings Estimates: Radio Shack has beat EPS estimates 0 times in the past 4 quarters. The company's EPS figures have come in between -21 cents and 0 cents from consensus estimates or about -260% to 0% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience downside and/or upside from earnings surprises.
Price Action: Radio Shack is down 69.3% over the past year, underperforming the S&P 500, which is up 0.9%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $5.78 and below its 200 day moving average, which sits at $9.21.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.