RadioShack stock has upward momentum – don’t fight the trend

At $21.80 per share, RadioShack stock (symbol: RSH) is resting close to its 52 week high today.  Goldman Sachs upgraded it on the fact that the “powerful” turnaround effort is going well.  While my belief back in December was that the stock would decline on heavy competition from its competitiors, I’m starting to believe that the stock is trading independently of the company’s actual performance.

The cost cutting attempts are surely working.  Rumors on message board indicates that layoffs are continuing past the initial phase back in August where 400 employees were laid off via email.  While cost cutting is a great way to improve margins and increase profitability, you have to have top line revenue growth to successfully grow a company. 

Turnaround CEO Julian Day is doing everything he can to increase shareholder value and he is succeeding.  As a long term investment though, I can’t see how his current plans of decreasing economic waste are going to help out with the long term issues of revenue growth and maintaining relevancy in the industry.

There is a lot of hype surrounding RadioShack right now and speculators are snapping up shares in hopes that Julian Day will turn the company around and bring it back to its old levels of profitability, but I still believe that long term, this company is destined to fail.

I won’t be buying puts or shorting the stock anytime soon as I believe the current upward trend is likely to continue in the short term. In fact, making a short term speculative play on the long side may not be a bad idea, but it isn’t one I’m willing to make.