With shares of RadioShack (NYSE:RSH) trading near $3, 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 MovementRadioShack is engaged in the retail sale of consumer electronics goods and services through its RadioShack store chain. The company operates in two segments, U.S. RadioShack company-operated stores and Target Mobile centers. The U.S. RadioShack company-operated stores segment offers a number of wireless communications, computers, tablets, e-readers, home electronics, and other related products. The Target Mobile centers segment offers wireless handsets with activation of third-party postpaid wireless services. RadioShack operates stores throughout the United States, Puerto Rico, and the U.S. Virgin Islands.
On Thursday, RadioShack shares were down severely after a report that the company is thinking about hiring a financial adviser to aid in repairing its balance sheet. Sources told trade publication Debtwire that RadioShack plans to accept offers for a financial adviser in the coming weeks to examine a possible a balance sheet fix while it faces a series of debt maturities, escalating cash burn, and swollen inventory levels. Consumer electronics will always have their place in American homes, and if RadioShack can repair its business, it stands to see consistent profits.
T = Technicals on the Stock Chart are Weak
RadioShack stock has been on a severe decline over the past several years. The stock is currently experiencing a fair amount of volatility on recent news. 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 slightly below its key averages, which signals neutral to bearish price action in the near term.
(Source: Thinkorswim)
Taking a look at the implied volatility 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 | 207.72% | 90% | 93% |
What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| August Options | Steep | Average |
| September Options | Steep | Average |
As of Friday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a 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 Decreasing Quarter-Over-QuarterRising 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 year-over-year revenue growth figures for RadioShack look like and, more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | -437.50% | -634.57% | -470.00% | -187.50% |
| Revenue Growth (Y-O-Y) | -7.04% | -6.55% | -3.06% | 1.20% |
| Earnings Reaction | 0.95% | 0.32% | 7.53% | -28.76% |
RadioShack has seen decreasing earnings and revenue figures over the past four quarters. From these numbers, the markets have been a bit optimistic about RadioShack’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and SectorHow has RadioShack stock done relative to its peers Best Buy (NYSE:BBY), Aaron’s (NYSE:AAN), Wal-Mart (NYSE:WMT), and sector?
| RadioShack | Best Buy | Aaron’s | Wal-Mart | Sector | |
| Year-to-Date Return | 31.60% | 146.58% | 6.08% | 13.69% | 18.62% |
RadioShack has been a relative performance leader, year-to-date.
ConclusionRadioShack is a consumer electronics retailer that operates in the United States and its regions. The company is said to be looking to hire a financial adviser that will help straighten out its balance sheet. The stock has not done well over the past couple of years and is now experiencing some volatility. Over the last four quarters, earnings and revenue figures have been decreasing, although the markets have been optimistic about recent earnings announcements. Relative to its peers and sector, RadioShack has been a year-to-date performance leader. WAIT AND SEE what RadioShack does in coming quarters.
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