If you're an investor in RadioShack (NYSE:RSHCQ), 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:
- 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.
Fool contributor Brian Stoffel has no position in any stocks mentioned. The Motley Fool owns shares of RadioShack. The Motley Fool is short RadioShack. 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.