A Visit to RadioShack’s Boston Concept Store

With 70% of my RadioShack thesis playing out sooner than I expected, it’s already time to seriously re-evaluate my position. So I thought that visiting one of the new concept stores would be a great place to start. Luckily, there’s one that opened-up in downtown Boston a few months ago.

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Sandwiched between a bank and a bakery along the Freedom Trail, the Boston concept store has a considerable amount of foot traffic passing by everyday. Sounds like a prefect location! Unfortunately, due to the the historic status of the area, RadioShack isn’t allowed to do much with the outside of the building. This results in smaller than desired windows and a decreased visual allure. The store doesn’t have much of a chance to actively entice curious pedestrians who weren’t already planning on stopping by. The best this location can do is leave the door open and hope that the music draws people inside. Once you step inside, though, it’s an entirely different experience. (more…)

Why I’m Investing in RadioShack

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I spent two weeks trying to talk myself out of investing in RadioShack, and another week asking my wife and friends to talk me out of it. I was finding way too much value in a company that everybody else had left for dead. Surely I had to be missing something. But alas, I am now a proud owner of RadioShack stock. I have four reasons for this, and here they are:

1. RadioShack Labs

How can a brick-and-mortar shop compete with and online retailer like Amazon? It’s impossible, unless they offer something Amazon doesn’t have. That’s the value behind RadioShack Labs. RadioShack is looking to bring you innovative products that can’t be found anywhere else.

RadioShack is simplifying the process for start-up companies to get worldwide, in-store exposure. RadioShack Labs offers fledgling start-ups the chance at an unreal amount of instant market penetration. I can see those companies battling for space in RadioShack, all-the-while providing the everyday consumer with unique products that can’t be found online or in any other store. And it just takes one smash-hit product exclusively available at RadioShack to bring people pouring through the doors of their nearby, conveniently-located shop (there are over 7,000 locations worldwide, so you’re bound to find one without much trouble).

How can RadioShack benefit before that first smash-hit product, though? Through clever marketing and partnerships. Imagine watching an episode of Shark Tank on ABC. The Sharks are deliberating. They can’t decide if it’s worth investing in a new gadget. A live poll pops-up on the screen asking the viewer if he or she thinks the Sharks should invest in the product. That poll is sponsored by RadioShack Labs. 85% of the people believe the Sharks should invest in the product, but none of the Sharks actually pull the trigger. Immediately after the show airs, RadioShack Labs blogs that the popular gadget will appear in their shops next week, righting the Sharks’ wrong. People are now stopping by a RadioShack every week to see if their favorite Shark Tank products are in-store.

2. An Expanded Fix It Here Program

Just look around and see how many people have cracked cell phone screens. Enough said.

3. Joe Magnacca and Friends

Joe Magnacca has already proven that he can revive a dwindling brand in Duane Reade. He was recently brought-on as a board member at American Apparel to help revive the struggling clothing company. The man’s trusted to find value if any value is actually there.

And Magnacca’s list of investor-friends has likely grown quite a bit through his involvement with American Apparel. Big-name investors have been rolling-in to help fund their recovery, and those same investors may find value (both monetary and nostalgic) in RadioShack as well.

4. Possible Renegotiation of Debt Contracts

The last and most important thesis point. RadioShack’s debt-holders refuse to let the company close more than 200 stores per year. If this holds true for much longer, I believe that RadioShack will go bankrupt. The stock market agrees with me and has priced RadioShack stock accordingly. However, the market is treating this wildcard as a fact, giving the company a market capitalization of around $60 million. Any scenario is technically possible, though, and therefore nothing should be set in stone this early. Debt is often renegotiated, and I theorize that some sort of renegotiation will likely occur.

RadioShack has a few hundred million dollars in assets (after taking into account their debt load). If the debt contracts are renegotiated (and RadioShack is allowed to close 1,100 stores), their market capitalization should quickly re-adjust to a more realistic value above $100 million.

 

RadioShack Thesis Breakdown

This is where I weigh each thesis point against each other. I base each thesis point’s value on a combination of three things: it’s comparative market impact (in my opinion), it’s likelihood of occurring (also, in my opinion), and it’s overall importance to my thesis. Like always, nothing is set in stone and I will re-evaluate my thesis every step of the way, as the situation evolves.

Radio Shack Thesis Chart

Plug Power’s Annual Shareholder Meeting

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I made the short trek from Boston down to New York last month along with a longtime friend and fellow investor. We arrived at the New York Times Building (the location of Plug Power’s annual shareholder meeting) a bit early. Andy Marsh, the company’s CEO, came over to meet with us for a few minutes beforehand. Hands down, he’s one of the most personable businessmen I’ve ever met. The fact that he’s nice is beside the point, though, since it has no impact on whether or not I continue investing in Plug Power.

I don’t find too much value in the pre-made presentations at these meetings. The real draw is the question and answer session at the end, since it can’t be scripted. The exchanges that go on during this part of the meeting can be filled with all sorts of Easter eggs that’ll never make their way into a press release (and oftentimes get completely ignored by the market). . . you might have to read between the lines, though. That’s why I was asking questions left and right (if you listen to the audio playback, I’m that guy who won’t stop asking questions). Here are my major takeaways from the Q&A session (all speculation, of course):

  • Target has talked to Plug Power about deploying GenDrive units in their warehouses.
  • Just because Hyundai-Hysco and Plug Power haven’t formed an official JV doesn’t mean that they aren’t already working closely together in Asia. They are likely visiting potential customers together on a regular basis.
  • The main hiccup with the Hyundai-Hysco JV is that neither company can find a decent value proposition for companies in Asia yet.
  • It seems like Plug Power is deep in talks to deploy GenDrive with a company in Mexico. My guess is BMW.

Why I’ve Invested in Plug Power

I’m always looking for grossly undervalued and under-appreciated companies on NYSE and NASDAQ (I don’t mess around with that OTC crap anymore), and Plug Power came under my radar a couple of years ago when their stock price fell under a dollar. A few months later (in May of 2013), after a considerable amount of research, I decided that it was time to take-up a large position in the company. Here’s why:

  1. The inordinate amount of stakeholders (not just shareholders) that benefit from Plug Power’s technology (and therefore want the company to succeed). This is a list of the obvious stakeholders and how I believe they can benefit from the company:
    • Plug Power shareholders can benefit monetarily
    • Plug Power employees benefit from well-paying jobs
    • Plug Power customers see benefits to their bottom-line
    • Workers that deal with the technology everyday no longer have to lift and change heavy batteries
    • The U.S. economy benefits from American manufacturing jobs
    • Environmental benefits are felt by the general population
  2. The list of deep-pocketed customers who already use the technology is top-notch (Wal-Mart, BMW, Mercedes-Benz, Volkswagen, Kroger, Honda, ACE, and P&G just to name a few)
  3. Tech companies that are both environmentally-centered and profit-driven (as opposed to R&D-driven) are ridiculously rare (and therefore valuable)
  4. Plug’s vertical-expansion strategy allows the company to grow their addressable market well into the billion-dollar range, all while minimizing the risk of a product being rejected by the market
  5. The cult-status of their stock has resulted in a tremendous amount of free advertising

That’s the reasoning behind my Plug Power investment. But as LeVar Burton once said: You don’t have to take my word for it.