RadioShack Corp. (NYSE: RSH) watched its stock tumble below $1.00 for the first time on June 20. Two days later the shares posted an all-time low of $0.81. A week later the shares have climbed 22% to $0.99. Is this a turnaround in the making or an inevitable and slow slide into bankruptcy?
In the company’s most recent quarter, it reported no goodwill on its balance. None. Zero. The book value on the stock is $0.72, which means that investors paying $0.99 a share are expecting — what, exactly? Either a payoff from a successful turnaround or — far more likely — some payoff from a bankruptcy filing.
The company’s long-term debt total is $613.4 million. And what do the bondholders think of that? At the current yield to maturity, bondholders will realize a total return of 30% if they hold on to bonds until 2019 and RadioShack can pay them off. Even J.C. Penney Co. Inc. (NYSE: JCP) bonds only pencil out to around a 10% yield if held to maturity.
If RadioShack liquidates in bankruptcy, what will the $791 million in the company’s inventory be worth? Not the face amount, that is certain, and inventory represents 80% of the company’s assets. Bondholders will get paid something — maybe everything — on liquidation, but common stockholders will get exactly nothing.
And if there are turnaround opportunities here, they are exceedingly hard to find. The company signed a deal with start-up accelerator PCH International early in June. Had the company tried that a few years ago it might have brought back the hobbyists who frequented RadioShack back in the day.
Competitor Best Buy Co. Inc. (NYSE: BBY) has managed to engineer a tentative turnaround, but profits are slim to nonexistent, and regardless of the enthusiasm for Best Buy’s stock, the company truly is on life-support. Year to date, Best Buy’s share price is down about 22%, which only looks good compared with RadioShack’s 62% collapse.
Best Buy had a turnaround plan and the company has executed on it for several quarters. It is a last gasp, at best, but at least it was a plan. RadioShack had no plan other than to close 1,100 stores, and that was squashed by debt holders who forced the company to cut that back to 200. There was no Plan B — or if there is it is so vague as to be virtually invisible.
Shares of RadioShack traded down about fractionally at $0.99, Monday’s closing price, in a 52-week range of $0.81 to $4.36.