RadioShack Has Electrifying 2013 Performance
NEW YORK (TheStreet) -- On Tuesday, something happened in the markets that we have not seen for more than 100 months.
Embattled retailer RadioShack
This happened with little fanfare, which is not surprising given that most investors have already given up on this name and are expecting the company's demise. Perhaps surprisingly, shares are up 96% year to date.
I have a term that describes taking positions companies such as RadioShack: "buying ugly." It applies to situations where a company is past its prime, in jeopardy, and the markets throw in the towel, expecting bankruptcy in the near future.
With everyone rushing to the exits, the stock price gets hammered well below intrinsic value (in the eye of the beholder, anyway). If there's any life left in the name, any sign of a potential turnaround, or that perhaps bankruptcy is not as imminent as once thought, the market ultimately admits its "mistake," and investors show renewed interest.
Some liken the practice of buying such companies to "dumpster diving," but as a deep value investor I see it as trying to identify and buy "50-cent dollars."
Investors love shiny objects, the Facebooks
The problem is that from an investment perspective, a great company does not always equate to a great stock. Facebook may be seen as one of the great innovations of this era, but if the stock is trading at twice what it's worth, why would you own it? Now, I'm not picking on Facebook; I'm just trying to make the point that there's often a disconnect between stock price and value.
In RadioShack's case, the question is not whether the company will ever regain its former level of prominence in the electronic retailing space; I certainly don't believe it will. The question is whether there's some life left in the name, how long management has to scale the company back and what it's actually worth at this point.