RadioShack at the Crossroads

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When we last checked in with RadioShack (NYSE: RSH), the gadgets retailer was showing some remarkable resilience. It had turned a slim 2% sales increase for the holiday season into a 22% earnings jump.

This week's first-quarter results look like more of the same. The Shack's revenues were up another 2% to $1.1 billion, but earnings managed to scramble up 24% compared with the same time last year, to $0.41 per share. Comparable-store sales increased 3% for the quarter.

While Radio Shack's definitely displayed the Midas touch for the past few quarters, the concern -- the same one we had last time around -- is that the party can't go on like this forever. Most of the firm's sales categories experienced a bit of shrinkage, though, wireless phone sales were up 28%, with growth in both the Sprint PCS (NYSE:PCS) and the Verizon (NYSE:VZ) units.

Regarding other merchandise, better deals with suppliers and fewer markdowns made RadioShack even leaner and meaner than before, but someday, the firm is likely to run out of ways to squeeze the juice out of existing sales.

Mr. Shack, your mission is clear: Get more sales. Management is aware of this need and has outlined plans to try to sell more batteries and parts. That, I believe, is a key goal. Hey, bits and pieces are the only reasons I stop by my neighborhood store. Does anyone really believe the firm can compete with giants such as Best Buy (NYSE: BBY), Circuit City (NYSE: CC), or even Wal-Mart (NYSE: WMT) on consumer electronics?

Investors seem to be getting edgy, as the stock has gradually dropped from the 52-week high it hit back in February. I'd be edgy. too. This year's free cash flow is expected to come in around $70 million, a far cry from the $422 million last year. Near $32 per share today, and with a P/E ratio of 17 on slim and -- to my mind -- endangered earnings growth, RadioShack looks overpriced.

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Fool contributor Seth Jayson is nerdy enough to know where the solder is at his local RadioShack. He owns no company mentioned above. View his Fool profile here.