Fundamentals and valuations
| RSH | HGG | BBY | |
| Market capitalization | $300M | $565M | $11.9B |
| Enterprise value | $570M | $520M | $11.1B |
| Price-to-book value | 0.6 | 1.7 | 4.1 |
| Price-to-sales | 0.1 | 0.2 | 0.3 |
| Gross margin | 36.6% | 28.9% | 24.4% |
| Operating margin | -2.5% | 2.1% | 4.9% |
| Dividend yield | nil. | nil. | 2.2% |
| Sales growth (recent fiscal year vs. year ago) | -2.7% | -0.7% | 1.8% |
| Employees | 34,500 | 6,300 | 165,000 |
| one-year total return | 18.4% | 167.6% | 102.7% |
Source: SEC filings, Reuters as of Aug. 23
The table shows that RadioShack Corporation (NYSE:RSH) has the lowest valuation, the highest gross margin (meaning the most expensive products) and the lowest operating margin. It seems like hiring a turnaround consultant and replacing executives were the right decisions. Going forward, RadioShack Corporation (NYSE:RSH) has the largest potential among its competitors to improve its operational performance, and its shares offer the largest upside potential.
For example, the company has the largest footprint in the U.S. with 4,395 company-owned stores and 1,014 dealer and other outlets as of the end of its most recent fiscal year. Importantly, the average size of a company-owned store is only 2,464 square feet, which has turned from a disadvantage into an advantage. RadioShack Corporation (NYSE:RSH) is:
- Reducing the number of its SKUs
- Improving its online shopping capabilities
- Moving from hardware-oriented products to more software-driven products
For comparison, hhgregg, Inc. (NYSE:HGG) and Best Buy Co., Inc. (NYSE:BBY) operate 228 (in 20 states) and 1,503 stores, respectively, with an average size of 32,000 and 30,760 square feet, respectively.
Liquidity
| RSH | HGG | BBY | |
| Quick ratio | 1.2 | 0.4 | 0.6 |
| Current ratio | 2.5 | 1.7 | 1.3 |
| Long-term debt-to-equity ratio | 1.4 | 0 | 0.5 |
| Interest expense % of sales | 1.20% | 0.10% | 0.26% |
| Debt maturing in less than a year | $286.9M* | nil. | $1.1B |
Source: SEC filings, Reuters/*Principal amount repayment of the company’s August convertible issue.
When a retail company such as RadioShack trades significantly below book value, equity investors should be concerned about the company’s liquidity. RadioShack has the largest amount of debt, but it also has the largest amount of cash in proportion to its debt. It is also the company with the highest quick ratio (current assets – inventories and prepayments divided by current liabilities) and the highest current ratio (current assets/current liabilities).
