The days of RadioShack (RSH) being the ultimate daytrader’s party stock are coming to an end, analysts say, because bankruptcy looks imminent.
Short sellers have certainly been bearing down on that outcome for RSH stock, helping create the sort of cheap, high-volume trade that daytraders and gamblers love.
RSH tumbled sharply Wednesday after analysts at Wedbush slapped a price target of $0 on shares because Chapter 11 looks unavoidable. That move comes after a 70% rally since early August on reports RadioShack would get a cash infusion allowing it to stave-off bankruptcy. (Any injection of cash has yet to be seen.)
The bottom line is that RSH stock was already down 64% for the year-to-date, bouncing between 55 cents and $4.36 per share along the way. With RSH below $1 per share, it’s so cheap and volatile that daytraders can’t resist (even if it is in danger of being delisted).
Everyone else, however, should definitely stay away from RSH.
RSH Going to $0
Although big, violent swings are fun — and potentially profitable for the speculator who gets them right — playing them is nothing more than a form of gambling. In the case of RSH stock, there is no investment to be made here. One way or another, RSH is a goner. It’s only a matter of time.
Here’s Wedbush on the endgame for RSH:
“We are reiterating our Underperform rating and lowering our 12-month price target to $0 from $1 as declining consumer-electronics sales and continued margin erosion will likely compel the company to enter bankruptcy in order to pursue its turnaround. Our price target reflects our expectation that creditors will force a reorganization and wipe out RadioShack’s equity.”
Don’t forget, Wedbush reminds us, that “RadioShack’s operational decisions are now being vetted by creditors and equity investors are no longer relevant to management decisions.” The creditors are in control of this sinking ship, looking to get the most favorable terms possible with what’s left.
Creditors can get part of any new company that emerges from bankruptcy protection, but it’s not clear why anyone would want it. Consumer-electronics chains like RSH and Best Buy (BBY) can’t compete with Amazon (AMZN) or Walmart (WMT). They can’t match on price, selection or convenience. The world has passed RSH by.
True, that won’t keep daytraders and short sellers from flipping RSH stock, especially on Thursday when RSH reports second-quarter results. Analysts expect RSH to post a narrower loss year-over-year on declining sales.
Bottom Line
If RSH can beat on the top or bottom line — or says anything about a cash lifeline — the stock will likely pop once again as the short sellers cover. But that will be nothing more than another session of volatility for RSH. The endgame is clear.
Hey, if nothing else, at least RSH stock is going out with a bang.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
