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RadioShack Signs of Life?

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 Chart RSH data by YCharts

My view on the stock changed when the "unthinkable" 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.
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