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Is RadioShack About to Be Delisted?

The last time RadioShack (NYSE: RSHCQ  ) traded above $1 per share was on June 19, when it closed out at $1.03 per share. Since then it's broken that barrier a handful of times during the day, but by the time the markets have closed, its shares have fallen back below the $1 threshold.

That's significant because the New York Stock Exchange rules require that stocks listing with the exchange exceed the $1 level by the end of the day at least once in any consecutive 30-day trading period. On that basis, RadioShack has until Aug. 1 to close above the threshold or receive a delisting notice from the exchange. At that point it has a 10-day window to explain how it will raise the stock price, otherwise it can voluntarily choose to delist and instead trade on the penny-stock pink sheets.

While the NYSE can forcibly remove the stock at that point, many similarly situated companies that want to remain publicly traded opt for a reverse stock split, a maneuver that vastly reduces the number of shares outstanding and artificially raises the stock's price. Just as when a company announces it is splitting its stock, say, 2-for-1, and you end up with twice as many shares in your account than you had before, but now they're at half the price, a company announcing a 1-for-5 reverse split, for example, will reduce your 100 shares to just 20 while increasing their value fivefold.

It's one reason The Motley Fool has regularly urged investors to ignore when companies announce splits, because it's really little more than financial sleight of hand. Sure, the markets tend to view forward splits as a bullish signal, but it's really background noise to how a company is operating. Reverse splits, on the other hand, are something investors should be mindful of because, as in RadioShack's case, their deployment is usually undertaken by companies in serious financial trouble. Not always, mind you, but often enough that it should be at least a yellow flag if a company you own announces one.

The clock is ticking on RadioShack. The consumer electronics retailer is under pressure to turn its business around and has adopted a number of strategies lately that could change the dynamic of its operations, but only if it doesn't run out of time -- or money. It may end up being a case of too little, too late.

Like rival Best Buy, which was also nearly brought to the brink of financial ruin, RadioShack met the challenge faced by the changing retail landscape by betting big on smartphone technology to save it. Best Buy chose to open dedicated mobile stores that housed nothing but cellphones while The Shack opted for being virtually all cellphone, all the time. Phones still dominate a prominent position in its marketing -- one of its newest initiatives is to make RadioShack stores the go-to place for repairs -- but it's also embracing new ideas, including a new deal with PCH International to introduce new inventions to customers through a national marketing campaign.

The problem is it may have waited too long to pivot. Revenues continue to fall and losses are widening. It's constrained by its lending agreements in just how much cost-cutting it can do (the agreements limit the number of stores it can close, for example), it's quickly burning through cash, and bankruptcy remains a real possibility, let alone a delisting.

I remain hopeful RadioShack can survive. Management seems to have seen the light at last, and it's at least making the right noises about what it wants to achieve. However, I wouldn't invest in its stock. The situation is too dire, the risks too great, to take a gamble it will pull through. Far larger, more storied (though not necessarily better-run) companies have succumbed over the years, and the market does not suffer nostalgia. 

RadioShack has a small window of opportunity in which to act, but whether its shares remain listed or not could be the smallest of its concerns.

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  • Report this Comment On July 16, 2014, at 1:21 PM, cbglobal wrote:

    So the only alternative to the New York Stock exchange is the Pink Sheets?

    When you think the articles on MFool could not get worse along comes Rich Duprey.

  • Report this Comment On July 19, 2014, at 11:07 PM, Vanmusicblues wrote:

    Seen the light? They had done nothing in seeing the light. Remolded 1 store in 3 months .4500 to go

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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2/4/2015 10:18 AM
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RadioShack CAPS Rating: *