RadioShack (RSH) lost as much as 15% early Monday as Wall Street expressed its displeasure with the consumer electronics company’s latest liquidity deal.
It has been quite the roller-coaster ride for RSH stock investors over the last month. Here are some of the events that have sent RadioShack stock zigging and zagging like a drunken zombie:
- Bad News: RadioShack reported an awful fiscal second-quarter, in which same-store sales fell 20% and the company admitted bankruptcy was a possibility.
- See Ya! The retailer’s chief financial officer abruptly jumped ship — days after RSH revealed it had only $30 million in the bank.
- A Hail Mary: Last Friday, RadioShack secured the $590 million lifeline it so desperately needed, and shares jumped as much as 35% in premarket trading.
- Not So Fast: In light of the major financing news, RSH shares were halted before the opening bell, and didn’t resume trading all day.
- After Sleeping On It: Wall Street, given the entire weekend to consider the implications of RadioShack’s newly found liquidity, hates RSH stock once again.
We’ve come full circle.
While the $590 million restructuring agreement — courtesy of RadioShack’s largest single investor, hedge fund Standard General LP — is still in place, it’s not all good news for RSH stock. While Standard General’s investment means the company won’t be going out of business immediately, $120 million of Standard General’s investment can be converted into equity — if Standard General opts to do that, it would substantially dilute current shareholders.
Moreover, RadioShack also will execute an offering to existing shareholders at 40 cents per share should the company still be around after January 2015, which could further water down shares.
At this point, nothing but a literal miracle can save RadioShack. One cannot simply throw money at a fundamentally flawed, outdated business model and expect a turnaround.
Heck, when RSH reported its awful quarter last month, it actually pointed the finger at Apple (AAPL) and its “iconic handset launch,” which caused potential customers to suspend their plans to buy all those phones they would’ve otherwise gotten at RadioShack.
Standard General is telling RadioShack not to go gently into that good night.
I say embrace the light, for it is imminent.
Amazon (AMZN) sealed RadioShack’s fate years ago. Circuit City’s death and Best Buy’s (BBY) subsequent struggles showed everyone that brick-and-mortar consumer electronics retailers face very real existential threats in the modern day. Add to that the fact that big-box stores like Walmart (WMT) and Target (TGT) have become one-stop shops, and it’s shocking that RadioShack has lasted this long.
Consumers have changed the way they shop. RadioShack didn’t see it coming, and now it’s doomed. This stock is going to $0, even if this liquidity package gets it through the end of the year.
If you still own RSH stock, cash out while there’s still something to cash out. You’re only getting 91 cents, but that’s definitely more than nothing.
As of this writing, John Divine was long AAPL. You can follow him on Twitter at @divinebizkid.