RadioShack (RSH) gapped up by as much as 15% this morning. The reason for the RSH stock jump was, in part, because of reports that its chief financial officer was quitting for “personal reasons” and that RadioShack would enlist a consultant as interim CFO.
You have to wonder why that would make any difference, however. RadioShack announced last week that it was very light on cash, with a mere $30 million left, and was desperately seeking $585 million in financing from UBS (UBS) and Standard General to keep the lights on.
But even if RadioShack manages to secure this cash infusion, it’s not going to be enough to help it in the long term.
RSH stock is doomed, and RadioShack investors shouldn’t bother hanging on any longer than they already should have.
Sell RSH Stock ASAP
Timothy Green over at The Motley Fool put together a great bunch of charts showing why RadioShack is doomed. Same-store sales have been cratering, margins have imploded … and most damning for RSH stock is the ugly balance sheet that shows dwindling cash and crushing debt.
Click to Enlarge Check out this chart that Tim shared to see the pain in living color.
When your revenue is falling faster than your operating expenses, and when you are unprofitable without a cash cushion to support yourself, talk of bankruptcy starts to heat up.
And while it’s always possible that a struggling retailer can find a cash lifeline when it needs one and eke out growth after longstanding sales declines — as JCPenney (JCP) has proven with its “turnaround” off lows earlier this year — it’s not exactly a sure thing.
The CEO of RadioShack himself has had a grim view of things, saying recently, “It’s clear that the current pace of our turnaround is simply not fast enough to address our near-term [cash] needs.”
When the chief executive of RSH stock is of this mind, investors should take note.
What RadioShack’s CFO Departure Says
It is worth asking, then, why RadioShack has popped in the face of these very real challenges.
After all, the CFO bailing out like a rat from a sinking ship doesn’t do much to alter the negative narrative for the company. And if you want to lay the horrible RSH stock situation at his feet — which is a bit unfair — it’s still likely that a new financial officer would be arriving too late to alter the course of RadioShack.
But hey, when stocks start to trade for $1 a share amid bankruptcy speculation, volatility naturally picks up.
Just don’t read too much into the longer-term prospects of RadioShack based on one day’s pop, because it’s very likely RSH will give this gain back soon.
The CFO had the right idea — bail out of this retail dud, and don’t look back.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.