Don't Get Too Excited About This Stock's Jump

If you're an investor in RadioShack (NYSE: RSH  ) , the past week has been an exciting one -- you've seen shares skyrocket 44% between the 23rd and 28th of January. And yet, if you're still holding shares of the company, I have two things to say:

  1. Really?
  2. Don't get too excited.

OK, maybe there's a little too much hubris in the first statement. Back in December, I called out RadioShack as my No. 1 Stock to Avoid -- or Short -- in 2013.  And to be honest, I've made my fair share of awful calls in the past.

But even though the company's stock is up big so far this year, I see no evidence that the underlying company is improving in any significant way. Read below for my thoughts on why RadioShack is up big, and at the end, I'll offer up access to a special premium report on the company.

It's all about the shorts
In the investment world, you can buy a piece of a company and hope that the value of the company goes up, but you can also make money by shorting a stock, or betting against it. In the case of RadioShack, over one-third of all available shares are being shorted -- that's a ton!

This is where it gets a little technical. When someone is shorting a stock, they eventually have to "end" their bet by buying back shares of the stock they're betting against. During 2012, anyone who had shorted RadioShack did very well, as the stock was down 78% on the year.

Most likely, any of those who had been shorting the stock have recently decided to end their bets. The simple act of having lots of people buy back shares to end their shorts creates a situation where there are more buyers for a stock than sellers. This pushes the price of a stock up, sometimes significantly, as I think is the case with RadioShack.

Let's remember, this is still a CEO-less company without a significant plan in place to turn things around. There's no other news that's been released that would warrant such a spike in price. That's why I'm not surprised that today -- on no news at all -- the stock is down by as much as 6%.

I'm still confident in my decision to suggest staying away from RadioShack, but it's always good to take a look at what the other side is thinking.

RadioShack has been around for more than 80 years and survived numerous technological disruptions during that time. The question is: Can RadioShack survive in today's new retail environment? To help answer that question, we've compiled an in-depth premium report covering all the opportunities, risks, and specifics that every investor should be aware of before deciding whether RadioShack is a buy or a sell. Simply click here now to claim your copy and start reading today.


Read/Post Comments (5) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On January 29, 2013, at 2:09 PM, Mattdm70 wrote:

    Unfortunately, once the 4th quarter report comes out, this stock will drop like a hot rock due to lack of profit...

  • Report this Comment On January 29, 2013, at 3:20 PM, TelsaRowe wrote:

    $2 again within 30 days

  • Report this Comment On January 29, 2013, at 3:46 PM, tommyk1963 wrote:

    Book value is about $6.00 so that's where I see the stock heading. A private equity buyer or strategic buyer will probably pay 25% less than that, or $4.50.

    So tons of upside left for RSH.

  • Report this Comment On January 30, 2013, at 10:07 AM, BenFE08 wrote:

    I concurr with Mattdm70. RSH will drop on 2/18 due to worse than anticipated earnings. They still have no retail savy, competent CEO at the helm, only the SOSO money man that knows NOTHING about running a retail company. They STILL have not shed the failures in middle management that came over from Blockbuster and they STILL have not figured out they've GOT to go back to growing knowledge from with. Products are STILL way OVERPRICED in comparison to their major competitors and they STILL refuse to understand they HAVE to come in line in order to compete.

  • Report this Comment On January 31, 2013, at 4:21 PM, Walpurgisnacht wrote:

    Eat it, Brian. The proof is in the pudding.

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