Why Did RadioShack Corporation Become This Week's Best Stock?

Is this meaningful? Or just another movement?

Aug 28, 2014 at 3:40PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of RadioShack (NYSE:RSHCQ) shot 40% higher today, capping a week in which they've already more than doubled in price, following reports that the troubled electronics retailer might receive a desperately needed cash infusion  from one of its largest shareholders.

So what: RadioShack's meteoric recovery from sub-dollar share prices began in earnest earlier  this week following revelations that hedge fund and 10% stakeholder Standard General LP has entered discussions with company management over ways to raise new funds and refinance existing loans.

A Bloomberg report, published after yesterday's closing bell, appears to have been the driving force behind today's megapop. It claims that Standard General -- which has already put its money behind struggling American Apparel in a similar show of support -- is trying to "salvage [its] investment" through cash infusions and through the refinancing of a $250 million second-lien term loan. Without such efforts, RadioShack may run out of cash by some point next year, which would force it to declare bankruptcy, something many analysts have been anticipating for some time.

Now what: The Fool's John Maxfield has already put together an excellent "Framework for Predicting Failure" highlighting RadioShack's perilous financial state, which should be recommended reading for anyone considering investing in RadioShack after today's pop.

Over the past five fiscal years, RadioShack has swung  from generating $165 million (in the dark times of 2009, no less) in free cash flow to bleeding out $111 million in negative free cash flow in FY 2012. It's since recovered somewhat to lose only $69 million over the past four quarters, but in this time its cash on hand has plunged  from more than $900 million to just $61 million today. New money might postpone insolvency, but RadioShack has yet to show investors that it's capable of reversing a deterioration in its business model that's been years in the making, and that's the only thing that matters in the long run. Companies on the brink have been known to yo-yo violently, but that's not a reason to start buying in.

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Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

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