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RadioShack: Selling Electronic Convenience?

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March 5, 2007

Posted by neillevine

About This Editor: I am a writer. Have been writing for other sites, but expect to do most of my future work HERE! My expertise extends from the esoteric such as burning hydrogen to the unpredictability of the stock market and my writing makes me a jack of all trades and exasperated master of none. I have had some influence over national wildfire and water policy and there are hints of a change in energy policy, BUT as Samuel Goldwyn once said, "A verbal promise is not worth the paper it is written on."

         

There is a Radio Shack electronics store in the shopping center about a block away from where I live. In the past couple of years, I have bought from that store three combination DVD-VHS tape players, two, probably three VHS tape rewinders, a table top telephone, a nifty digital clock radio with a large display and the ability to project the time on the ceiling and auto reset capability in case the power is shut off, 3.5 inch computer diskettes amongst other items. I bought my televisions and computers from other sources so I do not rely on Radio Shack for all my electronic needs and I have to get into the habit of searching the internet more for items I need and want although I have bought books, videos and other items online.

I like the convenience of walking in the store, checking the merchandise on display out and taking my purchase home instead of waiting for a delivery, which can get annoying when I have to go out for some reason.

I can remember when Radio Shack sold electronic parts and their own brand of computers. Now they have a convenient web site, where most of the merchandise in their inventory is readily available and they offer the option of picking up merchandise in their nearest store, a convenience that appeals to me.

So a recent impressive increase in profits motivated me to check out the stock. Like a lot of other companies, Radio Shack’s stock hit an all time peak during the internet bubble. It is now around $24 to $25 per share. It was in the low thirties at the end of 2004, beginning of 2005. The company reported earnings of $0.54 for the fiscal year ending December, 2006. It expects to earn $1.13 for 2007 and $1.30 for 2008. This sounds nice, but gross revenues for the corresponding periods were $4.78 billion, $4.6 billion and $4.7 billion for 2008. Not that encouraging since it is nice to see gross revenues grow along with the bottom line giving the company more leeway to increase profits.

At twenty-two times projected 2007 earnings, the shares have promise if the company can deliver the thirteen percent increase in earnings for 2008. But that would take more salesmanship rather than expertise in cost cutting.  Still it is not overpriced and has upside potential, probably not as good as Google or Cisco, but this market appears to be giving companies with increased earnings a nice uptick.  Since a comparison of sale prices shows RadioShack is competitive with its competitors on things like iPods and cell phones that means it will keep up with the competition, although it could add to sales by carrying those huge televisions measuring over forty inches. 

So RadioShack is selling electronic convenience and the potential to appreciate with the times.