How to Profit from RadioShack’s Coming Demise

Submitted by William Briat as part of our contributors program.

How to Profit from RadioShack’s Coming Demise

Retail is tough, especially the bricks-and-mortar end (i.e. physical stores). Blockbuster and Circuit City are examples of two major companies that plummeted into the abyss after failing to recognize the strong moves long ago towards online shopping with the growing popularity and accessibility of the Internet, based on my stock analysis.

Now, it looks like we are seeing clues that yet another major retailer may soon follow suit. My stock analysis indicates that electronic retailer RadioShack Corporation (NYSE/RSH) could be the next big retailer to collapse.

I can personally tell you that RadioShack is well past its prime. There’s an outlet near me, and I can honestly say that I have only been there a few times in the 14 years I have lived in the area. Shoppers looking for TVs, gaming consoles, mobile devices, and the like usually venture out to the Best Buy Co., Inc. (NYSE/BBY) that is located within a mile of this RadioShack.

However, Best Buy is still not totally safe, based on my stock analysis. Under the leadership of Hubert Joly, the electronic retailer has improved, but the company continues to face massive competition from both other physical stores and online sales especially.

I’m not sure I would be running to buy Best Buy at this time, and the stock market appears to be in agreement with my stock analysis, as the company is about 28% off its high.

My stock analysis suggests that Best Buy is not dead, as the stores are still popular as a place to physically shop; however, the issue I see is that electronic retailing has become extremely competitive based on price. Even if you happen to find what you are looking for at the local Best Buy or via their online store, many consumers will still shop around for better prices online. Now Best Buy guarantees the lowest price, but I’m not that convinced this can prevent shoppers going elsewhere, based on my stock analysis.

And in addition to the online rivals, my stock analysis indicates that Best Buy and RadioShack are also facing competition from the likes of Wal-Mart Stores Inc. (NYSE/WMT) and Amazon.com, Inc. (NASDAQ/AMZN).

Wal-Mart, which I refer to as the “Death Star” of retailing, has been aggressively moving into electronics, offering very competitive pricing. If you are a Wal-Mart shopper, you will likely buy your TVs and other gadgets, such as mobile phones, there. Best Buy still has a much better selection of products, but Wal-Mart and other big-box stores, such as Costco Wholesale Corporation (NASDAQ/COST), are real threats, as my stock analysis suggests.

On the online side, Best Buy needs to be mindful of the growing presence of Amazon.com, which has become a major online seller of goods, including electronics that go head-to-head with Best Buy.

If deciding on whether Best Buy is a good investment at this time, I would be hesitant, given the likely demise of RadioShack. The pending destruction of RadioShack is not simply due to Best Buy, but all of the reasons I discussed above, based on my stock analysis. That means that it will still be a tough battle for Best Buy, even after RadioShack’s demise. As such, aggressive traders may look at shorting the stock on strength, or a less risky venture would be to buy put options on Best Buy and benefit from weakness.

This article How to Profit from RadioShack’s Coming Demise was originally posted at Daily Gains Letter