RadioShack Is A Sinking Ship: Time To Jump Off

| About: RadioShack Corporation (RSH)
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As I'm sure most of you now know, RadioShack Corp. (RSH) is in much worse condition than many had expected. The electronics retailer hasn't had any luck at playing the painfully slow economic recovery; and the market doesn't seem to be at all sympathetic, sending the stock down 80% in the past year. I like to compare RadioShack, and companies in similar positions, to the Titanic. From a glance it may seem safe to jump on board; but you'll surely regret it later on.

RadioShack's products, from smart phones to flat screen televisions, will remain in high demand for quite some time, no doubt about that. Technology has bettered the lives of billions; and people will continue to fuel their tech addiction by purchasing the next 'revolutionary' product that they find absolutely necessary to survive.

No, it's not that RadioShack is selling some useless product. So then what's the problem? The ability to sell the product. That's one problem. RadioShack faces intense competition from the likes of Inc. (AMZN), eBay Inc. (EBAY) and even retailers like Target Corp. (NYSE:TGT) and Costco Wholesale Corp. (NASDAQ:COST). As technology continues to advance, evolving almost all aspects of life, eCommerce has rapidly grown to become a competitive market, dominated by names like and eBay. Why go out to RadioShack when you could just buy that new tablet online in the comfort of your own home? Or why not buy that new laptop at the same place you go every weekend to pick up groceries? With no real competitive advantage, RadioShack doesn't have much left.

It's not only the increasing competition, but the bottom line that's spooking investors. Dilapidating year over year earnings surely signal some trouble for the electronic retailer. At the rapid pace that earnings are declining, RadioShack will burn through precious cash as quickly as it was earned.

EPS Prior Year EPS Difference ($) Difference (%)
Q3'11: $0.15 $0.37 ($0.22) (59%)
Q4'11: $0.12 $0.51 ($0.39) (76%)
Q1'12: ($0.08) $0.33 ($0.41) (124%)
Q2'12: ($0.21) $0.31 ($0.52) (167%)

So far, the business doesn't sound too healthy. All of this negativity puts a bad taste in my mouth, so let's see if some numbers can wash it out:

  • Market Cap: $288.38 million
  • Current Share Price: $2.90
  • 52 Week Range: $2.36-$13.94
  • P/E: N/A
  • PEG: 0.19
  • Price/Book: 0.39
  • Operating Margin: 1.13%
  • Profit Margin: (0.38%)
  • ROE: (2.22%)
  • Total Cash: $517.70 million
  • Total Debt: $679.30 million
  • Dividend (%): N/A
  • Shares Short % Float (as of July 13): 43.70%

(Find more stats here.)

The numbers leave me wanting some mouth wash. Although there seem to be a few bright points here, they are deceiving. A PEG of 0.19 suggests that RadioShack is extremely undervalued; but considering the fact that RadioShack has missed earnings in six of the last eight quarters, this metric seems unreliable. The low price/book value also appears attractive, but consider that RadioShack's book value has been steadily declining since 2010. To make matters worse for RadioShack investors, the juicy $0.50 dividend has been 'suspended.' Personally, I feel that it won't be coming back at all.

But let's look at the glass as half full. Although it may seem like there's no upside potential, think about the possibilities. RadioShack could very well be an acquisition target, like its peer Best Buy Co. Inc. (NYSE:BBY) which is planned to be taken private by founder Richard Schulze. With a market cap just under $290 million, an acquisition of RadioShack is feasible.

Despite the slight bit of hope of an acquisition, slowly but surely, RadioShack has been sinking since it hit the iceberg; and it's only a matter of time before RadioShack ends up in the history books like the Titanic. In my last article about RadioShack, some denied the evidence right in front of them, thinking that rock bottom had been reached; since then the stock is down 33%. Unless somebody steps in to buy the company, I see very little upside potential; at this point, a turnaround is highly unlikely as RadioShack continues to lag competition. In the stock market, the only sure bottom is zero. Don't stay on board a sinking ship, jump into the life raft before it's too late.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.