Radio Shack: The WORST retailer!

THIS IS A PAST ARTICLE I WROTE DISPUTING BARRONS AFTER IT SAID THAT RADIO SHACK (RSH) WOULD GO ABOVE $30 WHICH IT DID BUT NOW ITS BACK TO $23.

I just read the Barron’s article and the Cramer support but yesterday the stock gapped on the story but didn’t move much but it’s been flat the next few days. These two pieces of support puts my short in danger so I feel the shorts may now have to wait. Barron’s is a decent place for good reliable analysis. I used to subscribe but no longer because I have so much to read these days I never get to it. Anyhow the article will give the stock some support but I doubt enough to push the stock high enough. But the stock is due for a pull back toward $25-26.

My analysis is based on a few things. First technicals. Technically the chart seems to be in a very very very very good uptrend. But that is very deceptive because you can start to see there is a bearish divergence that is starting in terms of the price versus the indicators like the MACD. The angle of the rise is perhaps the most scary because it’s in a trend that cannot continue especially for a non growth company in a mixed market situation.

Fundamentally it looks decent but if you look into the numbers, you will see it is priced for growth not a turn around. It’s current PE is at 50 while it’s competitors Best Buy and Circuit City is under 20. For 2007 earnings, they are still at 23 – if they make those earnings. At $36 (30% from this point), the PE is a whopping 31 for a old beat up retailer. For 2008 at the new prices, the PE is still 27 with earnings of $1.30. It needs to earn about $1.80 to justify the 30% rise to $35-36. Seriously, they have already cut cost and cut stores. Where are they going to find more revenue. They cannot cut anymore cost. They have to grow organically to justify the growth. They cannot grow with more stores. They need to increase sales per square feet. They don’t have anything that could possibly do that.

Let’s take a common sense approach to Radio Shack. Go into a store and you can tell they have no staff. Plus how can they compete when they lack the products to keep them competitive. Best Buy comes to mind for electronics. Not Radio Shack. Their marketing is subpar at best. If Circuit City can bearly make the cut, their Radio Shack more than lost. Let’s forget that. Let’s look at their sales. 35% of their sales come from wireless products. Ok there is a huge problem. Well it’s more like a gigantic problem. The market is flooded with dealers. One, there are authorized mom and pop dealers. There are large retail dealers like Best Buy, Walmart and the list goes on. Then there is internet dealers. But the worst competition is Verizon, Sprint, AT&T and TMobile who doesn’t care if Radio Shack can makes earnings or not. They are sprucing up their stores and their offerings. With their special phones and their products. How can you sleep with the enemy and expect to live. The IPhone already has one million orders and Radio Shack has no piece of that. There is a movement to more exclusive phones and products. But margins are also lower except for everything Apple. Who will end up winning? Let’s see…there is Apple, Verizon, Sprint, AT&T, TMobile and…well no one else…especially not Radio Shack with their declining sales and margins.

NEW ADDITION: Radio Shack reported declining earnings and Yahoo Finance still has a 13 Forward PE which is wrong because with declining revenues there is declining.  I think this retailer has a way to drop at least below $20.  Think Circuit City but worse.