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NEW YORK ( TheStreet) -- It may be hard to believe, but one well-known name was up 22% yesterday on five times its normal average volume; and it wasn't Apple(AAPL), Netflix(NFLX) or Facebook(FB) . It was none other than RadioShack(RSH), a well-past its prime company that finally showed a little life after a free fall of massive proportions. In fact, whenever I hear Tom Petty's song "Free Fallin' " I can't help but be reminded of RadioShack.
Companies often get hurt for good reasons; in RadioShack's case it's been declining revenue and margins resulting from very stiff competition in retail electronics. Net profit margins that were in the 5-plus% range fell to 1.6% in 2011, and are now negative on a trailing 12 months basis. Free cash flow, which has been positive for several consecutive years, has also gone negative on a trailing 12 months basis.
This was a company that has been difficult to be interested in. As shares fell from the $23 range in October 2010, to $7 the following March, I began to see other value investors becoming intrigued, and taking positions. It simply was not "cheap" enough for me at that point. My view of RadioShack was still sour; I viewed it as the older style electronics store that I'd rarely, if ever, set foot in.
RSH data by
My view on the stock changed when the
happened; it began trading below its net current asset value over the summer. I've been researching and writing about net/nets for many years now, and RadioShack is probably the most prominent name that has ended up in net/net land, a veritable scrap heap of down-trodden companies.
Buying a company below NCAV is no guarantee that you will see upside, but it can be an insanely cheap valuation; especially if the company is able to stop the bleeding, or show some signs of improving fundamentals. RadioShack becoming a net/net meant that many investors had simply given up on the company.