What Is RadioShack's Opportunity?

Some say that RadioShack (NYS: RSH) is doing its best to be the next Kodak and become the next iconic brand to fall into bankruptcy. Can RadioShack stage a turnaround and prove the bears wrong?

To help answer this question, check out our new premium report on RadioShack. For a taste of what's offered inside the report, read the following excerpt that discusses RadioShack's opportunity.

The opportunity
During 2012, RadioShack's stock price sank more than 80% and the company suspended dividend payments. But despite its recent track record, RadioShack does have the potential for reinvention. With RadioShack's board booting CEO Jim Gooch, the company now has an opportunity for stronger leadership and a new path forward.

Even though RadioShack has reduced its traditional U.S. store count, it's expanding overseas. It plans on opening 50 new stores in Mexico this year to reach 275 total stores in the country, with a goal of between 400 and 500 stores over the next four years. It also has a franchise agreement in place for Southeast Asia, and a joint venture agreement for China with Hon Hai, also known as Foxconn and as the manufacturer of iPhones. The company sees a potential for 1,000 stores in Southeast Asia, and has already opened a store in Shanghai.

Despite the failure of past kiosks, the expansion of Target Mobiles offers another big opportunity with the well-run Target (NYS: TGT) company. While Target Mobiles contribute a lower-than-average gross margin for RadioShack, the company is still optimizing the model. It hopes to improve its staffing to better serve customers, add higher-margin prepaid phones, and keep letting customers know of its presence.

Also, RadioShack does have the flexibility to change. Usually over 1,000 of its store leases end each year, so it can quickly adapt its locations and square feet to a new game plan. The company last reported over $500 million in cash and equivalents, and the next major debt repayment of $375 million occurs next August. The company wants to refinance half of that debt, and just agreed to a $100 million, five-year loan at 11% interest, so it only has a little more to do to achieve this goal.

The small $200 million market capitalization of RadioShack also might make it an attractive acquisition for an enterprising competitor; however, investors should rarely bet on acquisitions to bail them out of a struggling company. In 2010 there were rumors of Best Buy (NYS: BBY) looking at taking over the company for $3 billion, back when RadioShack's market cap was $2.7 billion. Best Buy could acquire the company for much less today, and roll out its new smaller-format Best Buy Mobile stores across the already-built network of RadioShack's. On the other hand, Best Buy might find it easier to build its own stores rather than try to absorb an unwieldy chain.

Companies like RadioShack and Best Buy are still searching for a solution to a sustainable business. New leadership could help revive RadioShack, and allow it to prosper overseas and within Target, while strengthening the company's balance sheet for the future. Or, investors could get a quick reprieve with a buyout — but so far, potential acquisition has only been a rumor, and nothing that a long-term investor should rely on.

More in-depth analysis available
That was a sample of what's available in our thorough premium report on RadioShack. As RadioShack faces a different store mix, new management, and the chance of a collapsing business, our report breaks down the most pertinent information for investors. It is completed with updates on the latest news and analysis for RadioShack. For your copy, click here now.

The article What Is RadioShack's Opportunity? originally appeared on Fool.com.

Fool contributor Dan Newman has no positions in the stocks mentioned above. The Motley Fool owns shares of Best Buy and RadioShack and is short RadioShack. Motley Fool newsletter services recommend Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.