tag:blogger.com,1999:blog-2149523431587168680.post6073782177797271672..comments2024-01-16T00:12:23.220-05:00Comments on Oddball Stocks: RadioShack as a net-net?…well sort ofNate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-2149523431587168680.post-87743295324436907862012-09-16T13:36:54.695-04:002012-09-16T13:36:54.695-04:00Interesting post on radio shack. It appears to sti...Interesting post on radio shack. It appears to still be in decent shape financialy not great shape but not really bad shape either. The thing that I do not get about this stock is why it trades at such a low price. The price to sales ratio or another way to define price to sales ratio is market cap its just under 300 million yet the company does over 4 billion in annual sales. They have cash or they show cash of 500+ on their balance sheet. I checked the company out on yahoo finance. Their a little leveraged. I think they have around 700 million in long term debt. But here's the thing with 500+ million of cash on their balance sheet its a really cheap stock. I would have to take a closer look in their financial statements to see if some of their long term debt Is comming due soon. It must be the case because the only way that a company that seems to still be in reasonably decent shape financially with 500+ Million siting on their balance sheet but has declined from 34 dollars just a little over five years ago to just 3 dollars today must have a potential problem refinancing its debt comming due. All that being said. You cannot beat this company as a great turnaround stock. I love to see a company thats really undervalued with lots of cash. Financial Directoryhttp://www.forestcotton.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-56682059407448032502012-08-02T15:47:37.348-04:002012-08-02T15:47:37.348-04:00If you deduct the purchase commitments, dont you n...If you deduct the purchase commitments, dont you need to add some inventory? Presumably they could resell whatever they committed to buy...even if they had to sell it at a 50% loss.Kevinnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-18413589402309215962012-08-01T17:00:49.495-04:002012-08-01T17:00:49.495-04:00Re-invention will be a requirement for them to sur...Re-invention will be a requirement for them to survive. The problem is that previous management moves might hold less weight on today's.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-47600630112690830482012-08-01T10:36:44.356-04:002012-08-01T10:36:44.356-04:00Well, too say I'm the smart guy in this case w...Well, too say I'm the smart guy in this case would be quite an overstatement, given my long position RSH, but there have been seven different insider buys files since the quarterly results. Maybe there is one puff left..<br /><br />Regards,<br /><br />FlorisFlorisnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-31602175655257335872012-07-31T20:21:13.269-04:002012-07-31T20:21:13.269-04:00RSH is such a classic value trap, I don't even...RSH is such a classic value trap, I don't even have to look at the balance sheet or anything else to know that this is DOOMED. There are so many better companies and stocks out there, but value investors still get attracted to these bottomless capital sinks.bjdubbsnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-11857729281278311632012-07-30T10:44:39.837-04:002012-07-30T10:44:39.837-04:00Their leases run down pretty quickly:
Commitments...Their leases run down pretty quickly:<br /><br />Commitments by year (2011 10-k):<br />2012: $195<br />2013: $142<br />2014: $100<br />2015: $70<br />2016: $38<br /><br />So this could allow them to slash their store base and thus cull less profitable stores. They're expanding in Mexico, they have the Target kiosk biz which is still ramping up...<br /><br />It's definitely speculative at this point, but given that in 4 years 80% of their leases will expire...Brian Hhttp://harperasset.comnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-46816969753423272972012-07-30T10:43:08.546-04:002012-07-30T10:43:08.546-04:00If they went BK and cleaned up the balance sheet e...If they went BK and cleaned up the balance sheet eliminating some debt and leases this would become very interesting. I can see a clean equity stub coming out of a BK having a lot of potential.<br /><br />Thanks for the comment on the least multiplier as well.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-28031288637384916962012-07-30T10:40:19.414-04:002012-07-30T10:40:19.414-04:00Just to add another thought: if some of the leased...Just to add another thought: if some of the leased space is in undesirable locations, RSH may try to precipitate a bankruptcy specifically so that it could weed those particular leases out by claiming that they are "burdensome". <br /><br />RSH is on my BK watchlist for this reason. I suspect it will be cheaper then than it is now.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-22545785907869302452012-07-30T10:30:56.492-04:002012-07-30T10:30:56.492-04:00RSH would reject the leases in order to try to rec...RSH would reject the leases in order to try to recover something for equity. By rejecting the leases, they would shrink the unsecured debt claims by, in this case, 50% of the lease commitment. So, it's a positive for equity in that sense.<br /><br />I hasten to add that for a going concern valuation, leases are debt pure and simple, and usually understated too. Best thing is to capitalize nex year's commitment (or this year's rent) by 7x or 8x to get the true value of the debt-equivalent.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-36506921773521083112012-07-30T10:03:27.007-04:002012-07-30T10:03:27.007-04:00Red,
Interesting, so leases would be at about 50%...Red,<br /><br />Interesting, so leases would be at about 50% given a rejection in bankruptcy. The question I'd have is if RadioShack and rejected the leases in BK what are the chances shareholders would get anything? In my thinking leases are higher up on the capital structure than shareholders, so if anyone's going to get paid it's lessors over shareholders.<br /><br />As you say net-net investing is determining a margin of safety. That's why I included the purchase commitments, RSH has entered into a contract to buy those goods and do that marketing. Shareholders are lower on the pole than vendors.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-76938194964733770482012-07-30T10:02:23.073-04:002012-07-30T10:02:23.073-04:00I think leases are liabilities and assets but as f...I think leases are liabilities and assets but as far as the net-net worksheet is concerned they are fixed assets and therefore do not count in the net current asset value calculation or count at a very steep discount (in your worksheet Nate I'd use the same multiple as PPE). Meanwhile in accordance with Graham's principles the full value of the liability must be deducted from net current asset value.<br /><br />In the UK at least leases can be sold as well as sublet. Whether anyone wants it, and at what price, is the question.Richard Beddardhttp://blog.iii.co.uk/noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-55535628507211311402012-07-30T09:59:26.155-04:002012-07-30T09:59:26.155-04:00Well, I think net-net investing is generally a for...Well, I think net-net investing is generally a form of protection against equity wipeout in bankruptcy. And, in view of that, lease liabilities are less harsh than than other forms of debt. <br /><br />Radioshack could file for bankruptcy and reject the leases; the lessor then files a claim for any unpaid rent at 100%, and future rents capped at 15% of the committed amount (or 1 year, whichever is more). <br /><br />To put a hard figure on it, for the purposes of RSH liquidation analysis, I'd value the leases at $195 million. <br /><br />But, in a liquidation analysis, I'd add in the legal and other costs of the bankruptcy process itself.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-20239640731742338112012-07-30T09:49:30.476-04:002012-07-30T09:49:30.476-04:00If cash has to outlaid in the future to cover any ...If cash has to outlaid in the future to cover any operating leases on locations that can't be subleased etc then its debt plain and simple.BookAddicthttps://www.blogger.com/profile/02029280019038511272noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-28605169942480866362012-07-30T09:39:38.843-04:002012-07-30T09:39:38.843-04:00balans,
Your view is very common, people seem to ...balans,<br /><br />Your view is very common, people seem to view debt as a real liability whereas an operating lease is something less. I think this is why companies like operating leases, they appear off the balance sheet and investors don't view them the same as debt.<br /><br />I would argue that an operating lease is the same as debt. Consider this, RadioShack purchased outright all of their locations, and financed them 100%. What you're suggesting is that some locations are so premium that RSH will be able to sell their location at an appreciated rate. This might be true in some areas but less likely with leases. The reason is leases are renewed every so many years so the company will be paying market rates. If a shopping center is a very desirable location they might decide to raise rates. As I mentioned my issue is the RadioShack locations I looked at were not in desirable locations, I haven't done an exhaustive study. But if all of their locations are in crappy shopping centers in Pittsburgh, Cleveland and Cincinnati (cities I know) it seems strange to assume locations in other cities are in desirable shopping centers.<br /><br />I'm not trying to bash the company, but I do think leases are a real liability on par with debt, and I'm suspicious about any value locations have. I think rather the opposite would be true, the company might have trouble getting out of leases for lack of demand.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-67968733331474983182012-07-30T09:26:32.319-04:002012-07-30T09:26:32.319-04:00Assuming that RSH paid market price for the lease,...Assuming that RSH paid market price for the lease, the price of a bad location is already discounted. However, we do need to discount for second hand and recession level market prices. Anybody knows a reasonable factor to discount the leases with? I do think 100 % is a bit harsh...balanshttps://www.blogger.com/profile/13042915863158819442noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-68226879973935292522012-07-30T07:54:01.616-04:002012-07-30T07:54:01.616-04:00Not sure I follow. The hardware cost came down ov...Not sure I follow. The hardware cost came down over time as production improved and the parts became cheaper. The actual monthly price stayed about the same. I think it's the same because the companies determined that's what people are willing to pay.<br /><br />Consider paying for text messages, it's crazy. The text message is carried over the protocol the phone uses to check for service. There was enough empty space in that packet for a 165 character message, so an engineer stuck on in there and text messaging was born. If a phone is turned on and checking for service it can send and receive texts. The fact that companies are charging $15/30 etc a month for something that's intrinsic to how the phone works is highway robbery.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-12772443325943279552012-07-30T07:51:14.734-04:002012-07-30T07:51:14.734-04:00If the leases were in prime locations with limited...If the leases were in prime locations with limited availability subleasing is a way they could escape them. I'm not sure if they could resell the leases and turn this liability into an asset.<br /><br />My bigger concern is the RadioShack locations I've seen are not in ideal locations at all. I can think of three or four off the top of my head that are in second run strip malls that sit half empty.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-80039330972285245712012-07-30T03:37:40.393-04:002012-07-30T03:37:40.393-04:00In a liquidation scenario do you know if the lease...In a liquidation scenario do you know if the leases have a value, i.e. can they be sold (for a discount - of course)? The right to use a shop in attractive locations should have some value?balanshttps://www.blogger.com/profile/13042915863158819442noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-72586352071235299872012-07-30T01:04:00.199-04:002012-07-30T01:04:00.199-04:00Nate,
On cell phone hardware versus cell phone se...Nate,<br /><br />On cell phone hardware versus cell phone service pricing over time: I think the culprit is regulations and the FCC.Taylor Conanthttps://www.blogger.com/profile/18270678440957992085noreply@blogger.com