Is RadioShack About to Be Delisted?

The consumer electronics retailer is treading water and doesn't have much time to maneuver.

Rich Duprey
Rich Duprey
Jul 16, 2014 at 10:05AM
Consumer Goods

The last time RadioShack (NASDAQOTH: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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