Is RadioShack a Solid Investment?

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 has announced it’s unveiling two new concept stores in Sun Valley, California and Manhattan, New York, respectively. Both stores are expected to open on March 22, according to a FierceRetail report Wednesday. The Manhattan store joins several other existing concept stores on the island; altogether, the retailer currently has approximately 25 other highly experiential concept stores, opened in a move that began in July 2013 to reinvigorate its stores. The electronics retailer has struggled in recent years, and announced earlier this month that it has plans to close more than 1,000 stores, or approximately 20 percent of its locations after reporting a fourth-quarter loss of $191.4 million after a feeble holiday sales season. The new concept stores feature interactive areas throughout the store, which “encourage shoppers to discover personalized solutions, connect with sales associates, and realize the unlimited potential of technology,” RadioShack wrote in a press release on Wednesday.

There are also designated areas on the floor where customers can receive special one-on-one training from store associates; part of a new marketing campaign RadioShack calls “Do it Together.” The electronics retailer is looking to reach out to an older age bracket and it’s new experiential concept stores are evidence of RadioShack’s attempt to embrace an older generation that might need more assistance with newer technology than say, millennials who have grown up with computers, cell phones, and gadgets.

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 consolidate before heading higher. 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.

RSH

(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

101.15%

0%

0%

What does this mean? This means that investors or traders are buying a 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 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

-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 had conflicting feelings about RadioShack’s recent earnings announcements.

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

-13.80%

-34.00%

-2.61%

4.66%

-10.43%

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 has announced it’s unveiling two new concept stores. The stock has declined in recent years and may need time to consolidate. Over the last four quarters, earnings have been on the rise while revenues have been decreasing, which has left investors with conflicting feelings. Relative to its peers and sector, RadioShack has been an average year-to-date performer. WAIT AND SEE what RadioShack does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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