RadioShack +9.1%; SA author sees a contrarian play


"RadioShack (RSH) is really not the unmitigated disaster that the overwhelming majority are making it out to be," declares SA author Charles Moscoe, making a bull case for the hard-luck electronics retailer. Management has said RadioShack has enough cash for 12 months, and the company is aggressively slashing costs in the interim.

Moscoe is also pleased with recent insider buying, and notes other struggling retailers such as Rite Aid, Best Buy, and SuperValu have risen sharply from their lows.

Though he admits the risk of bankruptcy is "material," Moscoe considers the risk/reward favorable in light of RadioShack's potential upside. He also thinks equity holders might not be completely wiped out should a bankruptcy happen.

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Comments (51)
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    Great opportunity to buy even more puts.
    27 Jun 2014, 11:23 AM Reply Like
  • Andynb
    , contributor
    Comments (58) | Send Message
     
    THIS investor looks beyond the surface and does a due diligence on the company and it's market.
    Last bullet... note that no mention of what the "equity" is that might be there for lenders and investors? It's real one thing; current inventory. In case you do not realize it, consumer electronics gets stale just like food. It may last a little longer, but it's really only about 3-6 months. As such 3-6 months from now the value of the current inventory will not be what they say it is today.
    In my opinion, the article's claim has no merit. Radioshack missed it's only chance to turn around a decline when Julian Day quit years back. Too late now. It may have been too late back then too!
    27 Jun 2014, 12:19 PM Reply Like
  • Equitable Research
    , contributor
    Comments (2200) | Send Message
     
    I don't think it has anything to do with equity leftover or due diligence. Simply the expectation of a positive outcome can iften drive speculation.
    27 Jun 2014, 09:52 PM Reply Like
  • zcharles
    , contributor
    Comments (288) | Send Message
     
    + maybe, a short term short squeeze. the co. announces a turnaround strategy and the stock pops.
    30 Jun 2014, 07:55 AM Reply Like
  • chopchop0
    , contributor
    Comments (5063) | Send Message
     
    So this retail disaster will be able to circle the drain a little longer?

     

    Doesn't mean it's an investment LOL
    27 Jun 2014, 12:43 PM Reply Like
  • Equitable Research
    , contributor
    Comments (2200) | Send Message
     
    What is your definition of "investment"? Curious...
    27 Jun 2014, 01:30 PM Reply Like
  • chopchop0
    , contributor
    Comments (5063) | Send Message
     
    It can have many definitions. That doesn't include a BK risk in the next 1-2 years in a company that lacks a defensible moat.
    27 Jun 2014, 03:07 PM Reply Like
  • Equitable Research
    , contributor
    Comments (2200) | Send Message
     
    I think we see things differently. I am focused on risk/reward when making speculative bets. I don't believe RSH is a great company (or even a good one), but I think that the chances are greater that the share price will see a significant appreciation rather than deppreciation.
    27 Jun 2014, 09:50 PM Reply Like
  • chopchop0
    , contributor
    Comments (5063) | Send Message
     
    "I think we see things differently. I am focused on risk/reward when making speculative bets. I don't believe RSH is a great company (or even a good one), but I think that the chances are greater that the share price will see a significant appreciation rather than deppreciation."

     

    When I want games of chance, I go to Vegas. It's more fun ;)
    28 Jun 2014, 10:59 AM Reply Like
  • Equitable Research
    , contributor
    Comments (2200) | Send Message
     
    Its all the same thing. Comes down to odds and chances of things happening. Just because an event is less likely than not to proceed does not make it a bad bet. Vegas is always a bad bet unless you are cheating. No game is designed to let you win. There is always sports betting however which I do quite well in with the same approach, simply fading the public. Think Seahawks and the Super Bowl and you will probably find the same people commenting in this thread repeating the same public nonsense about RSH that said that theres no way the Broncos can lose.
    28 Jun 2014, 11:05 AM Reply Like
  • Sam Johnston1
    , contributor
    Comments (514) | Send Message
     
    Chopchop0, you are very unsophisticated to make such a comment. If, in fact, RSH does not file BK in 2 years I'll be ecstatic. The likelihood of them trading much higher within a two year time frame is very high. i BOUGHT a bunch last week so I would love for no BK for two years. Easy triple or more from just the range of trading.

     

    I like making money....DO YOU?
    29 Jun 2014, 08:45 PM Reply Like
  • Sam Johnston1
    , contributor
    Comments (514) | Send Message
     
    Moscoe, No use in arguing with those that don't know what they are doing. He will never understand your point but anyone that trades and makes money should clearly understand your standpoint.
    29 Jun 2014, 08:47 PM Reply Like
  • chopchop0
    , contributor
    Comments (5063) | Send Message
     
    "Chopchop0, you are very unsophisticated to make such a comment. If, in fact, RSH does not file BK in 2 years I'll be ecstatic. The likelihood of them trading much higher within a two year time frame is very high. i BOUGHT a bunch last week so I would love for no BK for two years. Easy triple or more from just the range of trading."

     

    Unless you get a situation like the late CC

     

    Seriously, what is the "moat" of RSH?????
    29 Jun 2014, 10:03 PM Reply Like
  • mKiwi
    , contributor
    Comments (1642) | Send Message
     
    The moat is that they operate in the highly competitive Mobile telecommunications and computing arena. They don't sell undies! Therefore there a chance that a White Knight may ride in to the resque and gain competitive advantage displaying their own products AKA Microsoft, Samsung, Google, Apple. This is not beyond the realms of reason and all RSH management have to do is set JP Morgan of Goldman Sacks the task of finding a White Knight (or a Black Knight depending on your perspective and of course your ethnicity).
    29 Jun 2014, 10:13 PM Reply Like
  • chopchop0
    , contributor
    Comments (5063) | Send Message
     
    Any reason why that didn't happen to Media Play, Circuit City, Tower Records etc?
    29 Jun 2014, 11:40 PM Reply Like
  • mKiwi
    , contributor
    Comments (1642) | Send Message
     
    Perhaps management rearranged the deck chairs and played a last waltz instead of actively engaging JP Morgan or Goldman to find a buyer.

     

    I recall a priest who regaled me with the story of a man praying for salvation as his boat sank. The priest suggested that the man should have tried plugging the leak.

     

    http://bit.ly/1qpCUlq

     

    Go figure!
    29 Jun 2014, 11:52 PM Reply Like
  • FocalEquity
    , contributor
    Comments (2) | Send Message
     
    hi Charles,

     

    What is your upside target?
    27 Jun 2014, 11:41 PM Reply Like
  • Equitable Research
    , contributor
    Comments (2200) | Send Message
     
    $8 barring any acquisition event (which I think is a possibility also and would occur closer to $4).
    28 Jun 2014, 12:31 AM Reply Like
  • mKiwi
    , contributor
    Comments (1642) | Send Message
     
    Charles, your not the only one betting on RSH. There are some deep pockets betting on the company too:

     

    Standard General L.P. plus 10,130,928 shares or 9.8% of the shares in class.

     

    Obviously the bears are defending their short positions by roasting RSH in this forum.

     

    Hopefully Q2 & Q3 might bring some positive news.

     

    My personal belief is that management work for the equity holders. I don't believe it is an acceptable practice to burn the owners of the company just so that management can negotiate better lease conditions.

     

    My belief is that management are better to dilute the shares in the first instance to raise liquidity if necessary.

     

    3 billion revenue for less than 100 million.
    28 Jun 2014, 12:24 AM Reply Like
  • Equitable Research
    , contributor
    Comments (2200) | Send Message
     
    Yep I see that recent purchase. The stars seem to be aligning here. The negativity is comical under $1. I think there are alot of retail shorts in this. Doesn't seem smart to bet against Standard General, Litespeed and the CFO who just bought 100k shares at over $2. Of course the retail shorts here will say that it is not even relevant that these special situation hedge funds are taking MASSIVE positions in RSH, because this is just a twisted hedge of some sort against their bond positions. Nobody buys 10% of a company as a hedge for anything, they buy because they believe in the story its that simple. Makes no sense but thats the argument. Short interest steadily declining. The move is long or the sidelines here. Being short makes no sense at these depressed levels. I have a small position but I might bet more in a few weeks. Going to see how this plays out, we have plenty of time. Just the simple fact that a mildly positive article by me caused a big jump in price this morning under heavy volume tells me that the shorts are on edge and real news can move this parabolic quickly. I'm ignoring the day to day moves and looking to make 1000% here on my small bet.
    28 Jun 2014, 12:37 AM Reply Like
  • mKiwi
    , contributor
    Comments (1642) | Send Message
     
    Charles I quite enjoy the argument and counter argument as a mechanism to learn something about the company and to uncover little jems of information. Also to hear peoples thoughts. Both the long and the short side I suppose :)

     

    Whilst it's a little harmless game play for many of the people in this forum, I suppose the future of the company is on the line.
    28 Jun 2014, 11:32 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    RadioShack will never trade above $4 per share again.
    28 Jun 2014, 07:22 AM Reply Like
  • mKiwi
    , contributor
    Comments (1642) | Send Message
     
    Will you agree to make a 1 million dollar donation to city mission in New York if they do ever trade above $4? Yes or No?

     

    Standard General L.P. plus 10,130,928 shares or 9.8% of the shares in class. They obviously see some value there.

     

    Although it may just be a speculative punt.
    28 Jun 2014, 09:13 AM Reply Like
  • rube123
    , contributor
    Comments (2089) | Send Message
     
    "never trade above $4 again "
    but what happens if Chou buys ? here is the phone # so you can see what is up with the other crystal ball statement you made
    416.214.0675 .... that is from his Sec if you are able to read an Sec
    and while you are at it, Maybe Chou can help explain some of your other comments , as you seem to be confused

     

    http://seekingalpha.co...

     

    best thing that happened to RSH is the day Julian Day left , he is getting quite a trail behind him, as he rapes the companies , another Eddie junior

     

    RSH is in a hard business to be in , they need to re-invent themselves , at least they have a CEO in place now that may be able to do it
    don't know if they will survive or not , this could be another RAD in the making ...........at .98 a share it might be worth a few shares as a speculative play
    28 Jun 2014, 12:28 PM Reply Like
  • Equitable Research
    , contributor
    Comments (2200) | Send Message
     
    It is amazing that when you mention RAD as a comparison (which I mentioned in the article and is completely valid) that the same people who were saying RAD was "going bankrupt" for years and has "no hope and running out of cash" and the "worst company ever" are now saying "oh it wasn't as bad as RadioShack" "Rite Aid has more in demand products" blah blah blah... Same story over and over.
    28 Jun 2014, 12:56 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    rube 123,

     

    (RSH) will never again trade above $4.00 per share.
    28 Jun 2014, 03:51 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    Rite-Aid and Radio Shack are two different companies led by two different sets of managers.
    28 Jun 2014, 03:52 PM Reply Like
  • rube123
    , contributor
    Comments (2089) | Send Message
     
    even a puppet that can only say
    will never again trade above $4.00 per share
    will never again trade above $4.00 per share
    will never again trade above $4.00 per share

     

    with such certainty should be willing to
    "make a 1 million dollar donation to city mission in New York if they do ever trade above $4?"

     

    we heard the dribble of the $4 , we got that ...that is fine, that is your opinion , which you are entitled to
    we just don't need to hear it 900 times
    its like your dribble that those were not SHOS filings.........Nonsense

     

    how about that donation ?
    28 Jun 2014, 08:56 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    rube123:

     

    Are you saying that you are tired of me expressing the same opinion over and over and over?

     

    Gosh, that sounds a bit like an incessant SA commenter I am thinking of...
    29 Jun 2014, 10:01 AM Reply Like
  • Sam Johnston1
    , contributor
    Comments (514) | Send Message
     
    Making baseless comments is a sign of incompetence. Thanks for posting.

     

    waaaaaaa

     

    radio shack won't trade at so and so again.....waaaaaaaaaa

     

    how lame
    29 Jun 2014, 08:54 PM Reply Like
  • Sam Johnston1
    , contributor
    Comments (514) | Send Message
     
    Really? they have different managers.....wow...thanks for that info...you're so bright
    29 Jun 2014, 08:55 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    Baseless?

     

    Look at (RSH) financial statements and tell me again my opinion is baseless.

     

    RadioShack has no future other than bankruptcy court. Anyone who thinks otherwise is living in fantasyland.
    30 Jun 2014, 06:05 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    Bright enough not be long RadioShack at least.
    30 Jun 2014, 06:06 AM Reply Like
  • zcharles
    , contributor
    Comments (288) | Send Message
     
    that is what they said about Pier Import -PIR at .19
    30 Jun 2014, 08:05 AM Reply Like
  • chopchop0
    , contributor
    Comments (5063) | Send Message
     
    "that is what they said about Pier Import -PIR at .19"

     

    2009 was the buy of a lifetime for many companies, distressed or otherwise. lots of multi-baggers from there. not the same now.
    30 Jun 2014, 08:54 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    Pier 1 is a completely different company that was tied to a collapse in the home-buying market AND a major economic meltdown.

     

    Not even close to a good comparison.
    30 Jun 2014, 04:23 PM Reply Like
  • zcharles
    , contributor
    Comments (288) | Send Message
     
    the point is don't be greedy for the last penny unless this your niche.

     

    there are many events that could change the perception of a co. before bankruptcy or even in bankruptcy. if for example rsh successfully changes its emphasis on stores to the internet the stock could explode. if you can make the case that the debt load is too great you could eventually be right, but the stock price could still 3X+ in the short run as perception changes.

     

    this is a dangerous game unless you do your homework, even then the market may look at the situation differently. zale looked like a basket case at 4 before being sold to sig at 21.
    1 Jul 2014, 08:45 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    zcharles: It sounds like your strategy is hope. That is truly dangerous.
    1 Jul 2014, 11:33 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    Net income: -$455 million
    Profit margin: -13.34%
    Debt to equity ratio: 8.46
    Return on Equity: -131% (!)
    Return on Assets: -27%
    ===================
    I stand by my prediction that RadioShack will never trade above $4.00 per share again.

     

    The company sells products that consumers can buy with more ease and less money from at least a dozen other retailers (including a giant retailer that is obsessed with customer service, has a far more powerful retailing brand and is undercutting ALL other competition by operating on microscopic margins).
    28 Jun 2014, 10:33 AM Reply Like
  • Equitable Research
    , contributor
    Comments (2200) | Send Message
     
    That is quite a statement that is not based on anything but a guess. Regardless, I'm sure many will be happy with making over 4 times their money from the current share price.
    28 Jun 2014, 11:07 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    I only base my call regarding (RSH) on the reality of its audited financial statements and its brutal competition.
    28 Jun 2014, 03:53 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    Radio Shack:
    --------------
    Negative Margins
    Negative Returns on Equity AND Assets
    Negative Earnings
    Debt to Equity Ratio: 8.46

     

    Radio Shack has no advantages against Amazon and Wal-Mart.

     

    Radio Shack used to be a value trap but it doesn't even have that cache anymore.
    28 Jun 2014, 04:06 PM Reply Like
  • mKiwi
    , contributor
    Comments (1642) | Send Message
     
    @DeepValueLover

     

    You have a perfectly valid point of view and you are correct the financials do not appear inviting to most users.

     

    In Kiwi land we had a similar chain called Noel Leeming and like many electronic retailers globally their financials were not very attractive. Chain after chain have been faced with competition from online eCommerce retailers and shrinking margins as everyone competes for a limited slice of the pie.

     

    Recently, the Noel Leeming chain of electronic retailers was purchased by our Warehouse chain. The Warehouse was modeled on your WalMart stores.

     

    Now I say that RSH has a huge foot print all over the USA and beyond the US.

     

    They have a total addressable market in the hundreds of billions of dollars.

     

    Imagine Google or Microsoft buying the store for pennies to display their wares.

     

    Imagine WalMart or Amazon buying the stores. Amazon could ship goods directly to the nearest RSH store.

     

    It seems logical to me that there should be consolation within the industry.

     

    RSH should probably be gobbled up by a bigger fish.

     

    I don't believe management should choose bankruptcy because management work primarily for the equity holders.

     

    There are other mechanisms to increase liquidity if need be.
    28 Jun 2014, 08:46 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11049) | Send Message
     
    ...Imagine if there is a bidding war between Amazon, Apple and Google for RadioShack.

     

    Perhaps the bidding could drive the shares above $200 as the big guys become desperate to own RadioShack.
    ::::::::::::::

     

    Dreaming ≠ Investing
    29 Jun 2014, 10:04 AM Reply Like
  • zcharles
    , contributor
    Comments (288) | Send Message
     
    "I don't believe management should choose bankruptcy because management work primarily for the equity holders."

     

    your statement is false. unfortunately the interest of management and shareholders, particularly large co's, don't align with shareholders. management is more interested in keeping their jobs and their perks then increasing the value of shares. the prototype is GM where management was in cahoots with big labor to the detriment of shareholders. the result was bankruptcy.
    1 Jul 2014, 08:54 AM Reply Like
  • Quentin Compson
    , contributor
    Comments (4) | Send Message
     
    The last thing RSH is about is sentiment. It's not just the fact that news is priced in, it's that as liquidity is drained from the company you have suppliers that can both stop extending credit to RSH in the form of accounts payable (hence no goods to sell) and filing a petition to force involuntary bankruptcy (to make sure they get paid back). Similarly, down the capital structure, you have bondholders that are also acting in their best interest and disallowing RSH to save equity holders at their expense (limited # of store closing). This has nothing to do with sentiment, it has everything to do with activism that is happening against the interest of equity holders. The only way RSH survives is if they somehow get back to positive FCF... would love to hear an interesting & informed contrarian opinion on how that might happen.
    29 Jun 2014, 06:54 PM Reply Like
  • mKiwi
    , contributor
    Comments (1642) | Send Message
     
    The simple fact remains that large hedge funds are currently backing up the truck and loading up on RSH shares compliments of those persisting on shorting the stock.

     

    That is not speculation. That is fact.

     

    Funds with very deep pockets are walking the walk and not talking the talk.

     

    Longs such as myself could loose their investments in RSH or alternatively, shorts could loose their shorts.

     

    Dreaming about the huge profits that you will make shorting the stock if it goes to zero is equally not investing.

     

    If a buyer materializes you will loose your shorts overnight just as longs will if the company goes bankrupt.
    29 Jun 2014, 07:33 PM Reply Like
  • Quentin Compson
    , contributor
    Comments (4) | Send Message
     
    Okay, people need to understand that event-driven hedge funds buying the equity has nothing to do with whether they think the equity will go up or down. If it was an activist fund or a value fund or a top tier mutual fund then maybe..... but the hedge funds buying RSH shares are most probably trading through the capital structure. That means they could be long stock and short senior unsec. debt and long bank debt on RSH to construct a trade that has a positively skewed outcome regardless of what happens to RSH. Same thing can be done with RSH equity options, should the opportunity present itself. We are not dreaming, we are arbing the different securities. I would never put on a naked short or long on the equity here... many more ways to play this story than straight stock.

     

    And there's no way a buyer will materialize. Like... why would somebody buyout RSH at a premium to EV when they could help push them into bankruptcy and not pay for equity and get the assets for way cheaper in the restructuring fire sale. Even if you want the network of stores (none of which they own).... you'd be better off coming in during bankruptcy when they can break leases, restructure their debt, and oh yeah, not pay for the equity.

     

    Also, the only person allowed to "loose my shorts overnight" is my wife. And maybe that girl Adrienne who works at the bodega.
    30 Jun 2014, 08:26 PM Reply Like
  • 21stalpha
    , contributor
    Comments (2) | Send Message
     
    stopped by a local Radio Shack store late Monday night when I noticed trucks surrounding store. thought they were dismantling store, but turns out it was a REMODEL instead - for that and another less than 3 miles away as well! they were recently denied expectations of closing 2k stores, only allowed 200 closings. well not these two in New ORleans. will check other stores here and post later. btw - fascinating idea to team w/ PCH http://bit.ly/TvzHCr;p=irol-newsArticle&am...
    30 Jun 2014, 02:01 AM Reply Like
  • jazitler
    , contributor
    Comments (44) | Send Message
     
    The stores are so damn convenient (at least in uptown New Orleans), you would think management would capitalize on that by offering some compelling products like video games, just to drive some younger foot traffic into their aisles to buy all those little doodads they didn't know they needed.
    30 Jun 2014, 10:57 PM Reply Like
  • Equitable Research
    , contributor
    Comments (2200) | Send Message
     
    The Fix It Here concept seems to be about driving traffic and takes advantage of the convenience.
    1 Jul 2014, 01:52 PM Reply Like
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