A previous article on this site, “Stay Away from JC Penney, Radio Shack, and Sears,” detailed why investors should avoid those retail stocks. The recent news from RadioShack (NYSE: RSH) that it would close 1100 stores as reported by The Wall Street Journal provides even more proof. Over the last year of market action, RadioShack is down by about 25 percent (chart below).
There is little reason to expect improve from RadioShack, Sears Holdings (NASDAQ: SHLD), or JC Penney (NYSE: JCP).
All are losing money. All have loads of debt. All have declining sales growth and declining earnings-per-share growth. The real estate owned is of little value as shopping malls are losing out to open town centers and online shopping. Shoppers prefer the convenience and cost-savings of ordering over the web.
Investors should be wary of not be swayed by how undervalued these stocks appear.
The price-to-sales and price-to-book ratios for all are deceptively alluring. Anemic sales are what make the price-so-sales ratio so appealing. The real estate is way overvalued. As a result, the price-to-book value for these stocks is meaningless. There is one billion square feet of vacant retail shopping space in the United States, so vacant stores from RadioShack, Sears, and JC Penney will have little value. If those facilities were ideal for retail stores, logic would dictate the the owners would have done much, much better!
It is the Internet through Amazon (NASDAQ: AMZN) that is doing huge damage.
About one-quarter of consumer electronics is now bought online. That cuts right into the foundation of sales for RadioShack. For those who do want to buy their electronic gear in person, an Apple (NASDAQ: AAPL) store with the “Genius Bar” is a much more compelling experience. The decline of Radio Shack certainly shows that choice by shoppers, which should not go unnoticed by investors!