Where Will RadioShack Go Post-Earnings?

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With shares of RadioShack (NYSE:RSH) trading around $1, 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 Movement

RadioShack engages in the retail sale of consumer electronics goods and services through its store chain. The company operates in two segments: U.S. RadioShack company-operated stores and Target Mobile centers. It offers postpaid and prepaid wireless handsets; tablet devices; home entertainment, wireless, computer, and music accessories; and general purpose and special purpose power products. RadioShacks all supplies laptop computers, personal computing products, digital music players, residential telephones, global positioning system devices, cameras, digital televisions, and other consumer electronics products.

RadioShack today reported results for the period ended May 3, 2014. Joseph C. Magnacca, chief executive officer, said that, “Overall, our first-quarter performance was challenged by an industry-wide decline in consumer electronics and a soft mobility market which impacted traffic trends throughout the quarter. In particular, our mobility business was weak due to lackluster consumer interest in the current handset assortment and increased promotional activities across the industry including the wireless carriers. This resulted in disappointing sales and gross margin performance.

“Even in this environment, we are making progress on our turnaround strategy. We are building the pipeline of new products that will bring differentiation and newness to our stores in the form of high-margin private brand and exclusive items, including those from new partnerships like Quirky and PCH,” Mr. Magnacca continued. “Our concept stores continue to drive strong sales growth, and we have begun to execute our 100-store remodel program to scale the successful components of our concept stores across our network. We have continued to drive our new ‘Do It Together’ brand campaign, which highlights one of our greatest strengths, our store associates and the knowledge and solutions they provide to our customers every day.” Mr. Magnacca concluded, “We are also successfully reducing our costs, with a particular focus on removing expenses that do not impact the customer experience, and have taken steps to lower our corporate headcount, leverage technology, and reduce discretionary expenses. Our entire team is focused on executing our vision, adapting to the environment, managing our balance sheet, and driving sustainable change.”

T = Technicals on the Stock Chart Are Weak

RadioShack stock has not done very well in recent years. The stock is currently pulling back and may need time to consolidate before heading higher. 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 below its rising key averages which signal neutral to bearish price action in the near-term.

RSH

(Source: Thinkorswim)

Taking a look at the implied volatility (red) 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

198.86%

83%

80%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very 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 Mixed Quarter-Over-Quarter

Rising 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 revenue growth (Y-O-Y) figures for RadioShack look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

246.43%

0.8%

-136.17%

-152.38%

Revenue Growth (Y-O-Y)

-13.17%

-20.15%

-10.31%

-0.48%

Earnings Reaction

-12.01%*

-17.27%

-17.89%

-5.11%

RadioShack has seen rising earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been disappointed with RadioShack’s recent earnings announcements.

* As of this writing

P = Weak Relative Performance Versus Peers and Sector

How has RadioShack stock done relative to its peers, Best Buy (NYSE:BBY), Wal-Mart (NYSE:WMT), Aaron’s (NYSE:AAN), and sector?

RadioShack

Best Buy

Wal-Mart

Aaron’s

Sector

Year-to-Date Return

-47.50%

-26.40%

-2.55%

17.45%

-13.75%

RadioShack has been a poor relative performer, year-to-date.

Conclusion

RadioShack offers a variety of consumer electronics and services to a growing population. The company reported first quarter earnings that left investors disappointed. The stock has declined in recent years and may need time to consolidate. Over the last four quarters, earnings have been on the rise while revenues have been decreasing. Relative to its peers and sector, RadioShack has been a poor year-to-date performer. WAIT AND SEE what RadioShack does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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