RadioShack Will Burn Your Portfolio

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Do you remember the last time you were in a RadioShack (NYSE: RSH  ) store? I do, but that's only because the visit triggered a fraud alert on my credit card. In all fairness to the embattled electronics retailer, I wasn't close to home. But then again I have made plenty of purchases in Best Buys (NYSE: BBY  ) throughout the country, which my credit card company didn't find to be dodgy at all.

The point I'm trying to make is that I rarely find it necessary to go to RadioShack given the wide array of more compelling alternatives in electronics retailing. I can't even tell you where the closest RadioShack is to my home, even though the company is quick to point out that it has a store within five minutes of nearly every consumer in the U.S. However, I know exactly where the local Best Buy is, which seemingly carries every cutting-edge electronic product there is, and Wal-Mart (NYSE: WMT  ) is just down the road for plenty of basic electronic items and just about every basic necessity a human being could ever need.

Room for improvement?
Rumors of RadioShack's imminent demise are greatly exaggerated, especially since turnaround specialist Julian Day took the helm and quickly rationalized the cost structure by closing underperforming stores and quickly turning to operational improvements, such as enhancing inventory turns. But one has to wonder how much upside there is given that top-line trends have yet to improve markedly under his tenure.

The company did report impressive 6.9% growth in same-store sales when it released second-quarter results last Thursday, but skeptics were quick to point out that the company may be seeing a short-term boost as consumers bulk up on TV converter boxes in preparation for television broadcast signals going fully digital in early 2009.

Don't count on it
That being said, I just don't see the upside to owning RadioShack. Sure, it's trading at only about 10 times forward earnings and Day likely has us covered on any further downside, but given the current volatile stock market and concerns that the U.S. is in a recession, there are plenty of retailing names trading at low multiples of earnings. Heck, Best Buy is trading at less than 12 times earnings projections for the coming year, and I have already mentioned my bias toward smaller rivals such as hhgregg (NYSE: HGG  ) , which is hovering in single-digit P/E territory.

More fashionable alternatives
So while I don't think RadioShack will burn you on the downside, I don't see it keeping pace once consumers start spending again and the companies listed above start to see a serious pickup in their sales trends. I think it boils down to the advent of the big-box retail concept changing the retail landscape. We've seen how customers have flocked to sporting goods giant Dick's Sporting Goods (NYSE: DKS  ) , leaving Foot Locker (NYSE: FL  ) in the dust. Similarly, shoppers are more likely to turn to a more exciting store with larger selections like Best Buy or even Costco (Nasdaq: COST  ) for their electronics.

But don't just take my word for it. The Motley Fool CAPS investor-intelligence community is just as bearish as I am on RadioShack; the stock has been awarded the lowest one-star rating. Truth be told, the community of more than 110,000 investors is only slightly more enthusiastic about the electronics rivals I listed above, having awarded mostly three-star ratings.

Given the economic environment, I'd rather shy away from these companies. Instead, I think drugstore retailer CVS Caremark has a bright future, and CAPS has duly given it the coveted five-star rating. I see RadioShack as nothing more than a drag on your overall portfolio performance. If you agree, come on over to CAPS and give RadioShack a big thumbs-down.

Best Buy is a Motley Fool Stock Advisor recommendation. Wal-Mart and Best Buy have been recommended by Motley Fool Inside Value. The Fool owns shares of Best Buy. Costco is a Stock Advisor recommendation.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.


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