Will RadioShack’s Slumping Stock Recover?

With shares of RadioShack (NYSE:RSH) trading around $1, 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; and 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.

In March, RadioShack announced that it would close roughly 1,100 stores subject to lender approval. Now, the retailer is scaling back its closure plan. Shares in the once great retailer were plunging Friday following an announcement from the company that it would not be shuttering the 1,100 stores it announced earlier this year over disputes with creditors. On Thursday, the corporation filed an 8-K with the Securities and Exchange Commission.

T = Technicals on the Stock Chart Are Weak

RadioShack stock has not done very well in recent years. The stock is currently trading sideways 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 signals 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

192.43%

96%

94%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Steep

Average

July Options

Steep

Average

As of Monday, there is 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 significant 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)

0.8%

-136.17%

-152.38%

-437.5%

Revenue Growth (Y-O-Y)

-20.15%

-10.31%

-0.48%

-7.04%

Earnings Reaction

-17.27%

-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 been unhappy with RadioShack’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has RadioShack stock done relative to its peers – Best Buy (NYSE:BBY), Wal-Mart (NYSE:WMT), and Aaron’s (NYSE:AAN) — and sector?

RadioShack

Best Buy

Wal-Mart

Aaron’s

Sector

Year-to-Date Return

-46.9%

-34.4%

0.37%

12.65%

-16.07%

RadioShack has been a poor relative performer, year-to-date.

Conclusion

RadioShack offers a variety of consumer electronics and services to a growing population. The company announced that it would close roughly 1,100 stores subject to lender approval, and now the retailer is scaling back its closure plan. 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 unhappy. Relative to its peers and sector, RadioShack has been a poor year-to-date performer. WAIT AND SEE what RadioShack does this quarter.

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