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RadioShack – The Vultures Are Circling RSH Stock. Should You Be?

There's risk aplenty, as bankruptcy is a very real possibility for RadioShack, but RSH might be worth a speculative buy

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RadioShack (RSH) just can’t buy a break.

RadioShack RSH Stock BankruptcyRadioShack’s plans to close 1,100 stores over the next five years were scuttled by lenders in mid-May when the terms for allowing it to do so were deemed unacceptable by RSH management and board. As a result, it’s closing fewer stores and will instead find other ways to cut costs.

The move ramps up RadioShack’s losses, hurting whatever life is left in RSH stock.

The vultures are circling.

Does RadioShack have any chance of avoiding bankruptcy? Credit default swaps protecting against non-payment of debt indicate there’s an 86% chance of default by June 2015.

With the company’s best option for reducing its cost structure gone and vendors holding all the cards, the odds of a recovery in RSH stock get slimmer by the day. Thing is, battered companies toying with destruction do, on occasion, reward the speculative bull. But is RSH stock one of those kinds of plays?

Here’s how I see it.

How RadioShack Turns It Around

RadioShack closed at $1.21 heading into the Memorial Day holiday weekend. RSH stock hasn’t been this low since 1978 — six presidents have served in the White House in that time.

While it only has to lose $1.21 to go to zero, a 100% increase in the value of its stock would put it at $2.42 — still 54% lower than its 52-week high of $4.36.

The upside is certainly much greater than the downside at this point.

Although RadioShack’s slow death march has been ongoing for some time, it really didn’t pick up speed until 2010. However, in 2013 — well after its demise had begun in earnest — RadioShack hired Joe Magnacca away from Walgreen (WAG) just a week after being promoted to executive vice president of the nation’s largest drug store chain.

Magnacca was an up-and-comer at Walgreen, but he opted for a Herculean challenge over another promotion. It’s that kind of determination and drive that could ultimately reignite RSH stock.

Magnacca has been at the job for 16 months now, and he continues to tinker with RadioShack’s management to provide the best customer experience possible while generating a profit. Joe Magnacca’s five-point plan is going to take time, however. One of the five pillars of the plan took a big hit with the decision to reduce the number of store closings, but otherwise not much has changed at RadioShack when it comes to its turnaround.

As long as liquidity remains, Magnacca et al. will continue to push its “do-it-together” mantra with customers. That’s its best shot to win back customers and push RSH stock higher.

How RSH Stock Hits Zero

As I mentioned, there is a good chance RadioShack could default on its loans.

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Article printed from InvestorPlace Media,

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