Circuit City Is a Big Tease

It's official. Circuit City (NYSE:CC) is a world-class tease.

Two years after rebuffing a buyout offer at a rather measly $8 per share, it is now telling Highfields Capital Management to take a cold shower by refusing its proposal to take the company private at $17 a stub.

To be fair, it wouldn't have been an easy move for Circuit City to make. While last month's offer was made when the stock was trading just above $14, it's been a mere three months since the shares traded -- albeit briefly -- above $17.

Besides, in whispering "not tonight" in Highfields' ear, Circuit City is only agreeing with its suitor that the stock should be trading higher. Highfields had some cruel, yet dead-on accurate, constructive criticism when it started courting Circuit City. It obviously wasn't looking to swallow the company whole -- it already had a 7% stake in the struggling retailer -- as if it were buying Circuit City for charity's stake.

Look at rival gadget gurus like Best Buy (NYSE:BBY) and RadioShack (NYSE:RSH), and you can see why Circuit City thinks it should be trading taller.

So Circuit City is cheap? Not so fast. It's a shame Circuit City doesn't sell mirrors, for if the company took a closer look at itself, it would realize that it's no Best Buy. If Circuit City wants to aspire to greater heights, it had better learn to look down, too. That way, it won't step on the ruins of fallen consumer electronics chains like RadioShack's Incredible Universe concept or the bankruptcy-boundUltimate Electronics. The latter, trading at a rather grim 0.02 times trailing sales, is telling. Tweeter (NASDAQ:TWTR), alive and kicking, is trading at just 0.17 times last year's top-line showing.

So what's so special about Circuit City? That's where the mating and dating metaphors fall apart. Circuit City says that its cheap price doesn't mean it's easy, but the reality is that it operates in a much more difficult environment these days. If Circuit City winds up accepting a buyout offer at $15 in a few years, don't be surprised.

Wal-Mart (NYSE:WMT) will help outfit your home with all of the latest gadgetry at a rock-bottom price, while Target (NYSE:TGT) will add a cheap-chic touch for just a little more. Even Federated Department Stores' (NYSE:FD) Bloomingdale's chain beefed up its consumer-electronics offerings over the holidays.

So Circuit City may be a tease, but in the end, it's really only teasing itself.

Some more thoughts on the consumer-electronics landscape:

• Seth Jayson thinks that Circuit City shouldn't look a gift offer in the mouth.
• Yes, Ultimate Electronics is hoping to get things reorganized.
• Maybe "Pity Circuit City" can become a new rallying cry.

Longtime Fool contributor Rick Munarriz has a different idea of home theater. It's called watching his two sons argue. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.