The definition of a penny stock varies from trader to trader. Some limit the classification to stocks that trade for less than a dollar. Given the increased value of the stock market and the weakening of the dollar, many investors now stretch the definition to include any stock that trades for less than five dollars. Other definitions include stocks which only traded on the OTC Markets. It is a rare combination when you find a stock trading at less than one dollar and is listed on the NYSE. Through a series of recent setbacks Radio Shack is now considered one of the few NYSE penny stocks.
While there are certainly pitfalls with low priced securities like Radio Shack, they also offer the chance for big gains or losses to investors. Pier 1 Imports is an example of a retail stock that reached the edge of bankruptcy and was a penny stock but now is trading well above $5 per share. Let’s look at five criteria which will allow us to get a handle on Radio Shack’s future prospects and help decide if Radio Shack is one of the best NYSE Penny Stocks.
The Price of a NYSE Penny Stock
Penny stocks have garnered much attention in this dynamic market as many stocks have increased in price. Even with a rising market traders are always looking for low priced stocks. Some traders feel low priced stocks are a bargain just because the price is low. However, finding a bargain in the penny stock wasteland is tough given the limited and poor quality of information available. However, Radio Shack has plenty of information available because it is listed on the New York Stock Exchange (NYSE). Radio Shack’s stock price has been declining while most of the market has been increasing. Radio Shack is a NYSE penny stock but it may not remain one for long. The NYSE rules require shares to close above $1 any day within the previous 30 trading days. It went under a dollar in June making it a penny stock by any measure and counting 30 days out from there puts August 1st as the day in which the NYSE may issue a delisting notice. At which point Radio Shack will need to provide an explanation as to how it will increase the share price and meet other listing requirements.
The easiest way to meet the share price requirement is to do a reverse stock split. This reduces the number of shares and at the same time increases the share price. A 10 for 1 reverse stock split will increase the share price by 10 times, for example 85 cents to $8.50, and decrease the outstanding shares by a factor of 10. However, performing a reverse stock split will not change the market capitalization or value of the company. Furthermore, the issues which brought RHS’s stock below $1 still remain. Perhaps there will be some good news on the earnings front or a new product which will invigorate sales. Positive news could drive the share price above $1 and keep the company in compliance with NYSE continued listing requirements. However, the trend has been decidedly downward.
Radio Shack’s stock price has declined over 70% year to date with no sign of the free fall stopping. The price has stayed beneath the dollar marked for a while. A low stock price doesn’t mean the stock is a good value. This appears to be the case for Radio Shack. However, there is always the chance that the company can receive a buyout offer or a short term spike in stock price can occur with unexpected positive news.
Financial Stability
A report by CNN Money cites Scott Tighman, an analyst with B. Riley, decrying the fast cash burn rate and forecasting total failure with the company likely to file bankruptcy. Revenue is dropping but the company can’t stop spending its limited cash on its way down. According to Yahoo! Finance Radio Shack has over $600 million in debt compared to only about $60 million in cash.
Is There Potential for Growth?
In its disastrous filings, Radio Shack has called the consumer electronics market weak. At first, many people are inclined to agree. But if that is true, why is it that Apple has gained 5% in revenue during the second quarter of 2014? Best Buy has been able to correct its free fall and has gone from a showroom for Amazon.com to a respectable consumer electronics retailer once again. Price matching, a focus on wireless communication and other clever marketing initiatives have helped Best Buy. Radio Shack may need to learn a thing or two from Best Buy if it wants to survive. With the right focus, Radio Shack could regain the initiative by leveraging its iconic brand name.
Management
Radio Shack has made changes to their management to team but without much to show for it. They fired CEO Magnacca after less than a year on the job. This suggests that they are scrambling and the latest management team has yet to produce any positive news.
Financial Information
Financial disclosure and reporting requirements are very good for NYSE stocks including Radio Shack. The company’s troubles have been well documented and the company remains in compliance with financial reporting obligations.
Radio Shack a Penny Stock to Watch
Determining which way Radio Shack’s stock price is heading is a tough call but nonetheless it is a penny stock to watch. The company has a long history and for many years produced admirable revenue and earnings. The price of NYSE penny stocks, like Radio Shack, may be more likely to move because of shifting business fundamentals than from a shady pump and dump scheme. Whether or not these fundamentals will improve remains to be seen.
