RadioShack's a Roller Coaster Ride for Investors
The extreme volatility was on display Thursday amid reports that the company intended to hire an adviser to help it navigate some rough waters associated with a looming debt maturity and other balance sheet related issues. The fear that this really meant bankruptcy was on the horizon helped send shares as low as $2.18 during the, a 23% drop from the previous close, on nine times normal average volume. By the end of trading, shares recovered most of the drop, closing at $2.63.
Late in the day, the company attempted to quell the bankruptcy fears acknowledging that it was in discussions with investment banks, but stating that these talks were focused on further strengthening the balance sheet and its current $820 million in liquidity, and not on bankruptcy. On Friday, shares gained back 11%, after digesting the company's statement. Then, yesterday, the stock added another 8.5%, and the roller coaster ride continues, and the volatility is likely to continue.
In my view, there are three camps in the RadioShack debate. The first sees the company as a dinosaur; one that has become largely irrelevant in the intensely competitive consumer electronics business. Much like the dinosaur, the company will become extinct, and is simply grasping at straws at this point, delaying the inevitable. The brand is well past its prime, and has no hope.
The second camp sees the potential for a rebirth under the direction of CEO Joe Magnacca, who successfully turned around the Duane Reade drugstore chain. Through a successful redesign of the stores, and a re-branding of the company's image, the customers will come back. I would count the number in this group as much smaller than the first.