The 5 Dumbest Things on Wall Street This Week: Oct. 25
3. RadioShack Nailed
Take a look at the one week chart for RadioShack (RSH) if you don't mind. Check out the stock's sudden thrust higher after the close on Monday. Pretty sharp spike huh?
As they say in Japan, The nail that sticks up gets hammered down. And boy did the Shack -- and overeager traders -- get nailed on Tuesday!
Shares of the consumer electronics chain surged by 7% to $3.52 in extended hours trading Monday after unnamed sources told the WSJ that RadioShack secured a fresh round of financing from GE Capital. According to the deal, GE Capital will extend $835 million in new financing secured by inventory and other assets to RadioShack, $585 million in the form of a credit facility and $250 million in a second-lien term loan.Boo-yah! What's better than a boatload of fresh money for a foundering franchise? Jumping into the Shack on a report like that is a no-brainer. Right? Literally speaking, yes, it is true. You really did have to be brainless to chase that stock in the highly illiquid, shark-filled arena of extended hours trading. That's because the refinancing was only half the news. The rest of the story (thank you, Paul Harvey) emerged on Tuesday morning when RadioShack revealed it racked up a loss of $112 million on $805 million in revenue for the third quarter, compared to $47 million on $898 million in sales last year. The greater-than-expected loss was due to a write-off of inventory, with the company's margin taking a hit. Tuesday's announcement shellacked RadioShack's stock, which fell 18% Tuesday to close at $2.89. As for RadioShack's future, CEO Joe Magnacca said he is pushing as hard and fast as he can to turn around the company by renovating stores, obtaining improved store locations and securing exclusive products. And as for all those overzealous after-market investors that got flattened this week, maybe they'll be smarter next time and slow down.
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