With shares of RadioShack (NYSE:RSH) trading around $2, is RSH an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
RadioShack engages in the retail sale of consumer electronics goods and services through its store chain. The company operates in two segments, U.S. RadioShack company-operated stores and Target Mobile centers. It offers postpaid and prepaid wireless handsets, tablet devices, home entertainment, wireless, computer, and music accessories, as well as general purpose and special purpose power products. RadioShacks all supplies laptop computers, personal computing products, digital music players, residential telephones, global positioning system devices, cameras, digital televisions, and other consumer electronics products.
RadioShack reported a wider quarterly loss on Tuesday and said it will close up to 1,100 U.S. stores after a huge drop in sales over the holidays, sending its stock down nearly 24 percent. The planned closures would leave the Fort Worth, Texas-based chain with over 4,000 stores, including over 900 dealer franchise locations, its chief executive officer said. Sales totaled $935.4 million in the quarter covering the all-important holiday season, down 20.1 percent from $1.17 billion in the year-ago period. Sales at stores open at least a year fell 19 percent in the fourth quarter on weak customer traffic. The grim results were not entirely unexpected, considering the overall weakness in the consumer electronics industry during the holidays, but many on Wall Street took a grim view of the company’s prospects. ”The company’s results were much worse than we anticipated, and cast serious doubt on RadioShack’s long-term viability in our opinion,” said BB&T Capital Markets analyst Anthony Chukumba.
T = Technicals on the Stock Chart Are Weak
RadioShack stock has not done very well in recent years. The stock is currently pulling back and may need time to stabilize. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, RadioShack is trading below its rising key averages which signal neutral to bearish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of RadioShack options may help determine if investors are bullish, neutral, or bearish.
|
Implied Volatility (IV) |
30-Day IV Percentile |
90-Day IV Percentile |
|
| RadioShack options |
112.35% |
0% |
0% |
What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.
|
Put IV Skew |
Call IV Skew |
|
| April Options |
Steep |
Average |
| May Options |
Steep |
Average |
As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bearish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Mixed Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on RadioShack’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for RadioShack look like and more importantly, how did the markets like these numbers?
|
2013 Q4 |
2013 Q3 |
2013 Q2 |
2013 Q1 |
|
| Earnings Growth (Y-O-Y) |
0.80% |
-136.17% |
-152.38% |
-437.50% |
| Revenue Growth (Y-O-Y) |
-20.15% |
-10.31% |
-0.48% |
-7.04% |
| Earnings Reaction |
-13.69%* |
-17.89% |
-5.11% |
0.95% |
RadioShack has seen rising earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have not been too happy about RadioShack’s recent earnings announcements.
* As of this writing
P = Average Relative Performance Versus Peers and Sector
How has RadioShack stock done relative to its peers, Best Buy (NYSE:BBY), Wal-Mart (NYSE:WMT), Aaron’s (NYSE:AAN), and sector?
|
RadioShack |
Best Buy |
Wal-Mart |
Aaron’s |
Sector |
|
| Year-to-Date Return |
-9.62% |
-34.50% |
-4.25% |
3.40% |
-3.61% |
RadioShack has been an average performer, year-to-date.
Conclusion
RadioShack offers a variety of consumer electronics and services to a growing population. The company reported a wider quarterly loss on Tuesday and said it will close up to 1,100 U.S. stores after a huge drop in sales over the holidays. The stock has declined in recent years and may need time to stabilize. Over the last four quarters, earnings have been on the rise while revenues have been decreasing, which has left investors disappointed with the company. Relative to its peers and sector, RadioShack has been an average year-to-date performer. WAIT AND SEE what RadioShack does this quarter.
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