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Tickers in this Article: RSH, BBY, GS, DELL, CC, WMT, TGT
The release of some unimpressive first-quarter results caused gadget-retailer RadioShack's (NYSE: RSH) stock to take 3% hit just after the open Tuesday morning, June 19. The poor reuslts weren't even RadioShack's; the culprit was Best Buy (NYSE: BBY).

With Best Buy's less-than-expected first-quarter results, many in the investment community assumed a profit warning from RadioShack wouldn't be too far behind. However; others hoped the drop was a "head fake" that would leave the stock heading higher. Let's examine the problem from both sides.

Different, But Similar

First off, while there are significant differences in merchandise selection at both stores, they are both highly dependent upon the consumer's voracious apatite for the latest and greatest in electronic gadgetry. To that end, I can't help but think that they are, and should be inexorably linked.

Another thing that scares me is that RadioShack stores are primarily mall-based, and these days it seem that nearly all the big-name mall-based players aren't faring too well.

Consumers are becoming more cost-conscious, and they seem to going out of their way to drive to stand-alone discount stores like Wal-Mart (NYSE: WMT) or Target (NYSE: TGT) rather than to the local shopping mall. Which leads me to my next point.

Big Box Markdowns
Wal-Mart and Target have been heavily marking down their flat screen TVs and discounting other electronic goods in an effort to draw foot traffic to their stores. And they've been fairly successful - at the expense of Best Buy, Circuit City (NYSE: CC) and RadioShack.

Another issue worth considering is how high the bar has been raised at RadioShack. At present, Wall Street is expecting the company to earn $1.50 per share in 2007 and $1.66 per share in 2008.

But I'm not sure this is possible - especially the 2008 figure - given Best Buy's recent woes. Then there's the valuation.

Valuation a Concern
Best Buy currently trades at about 15- or 16-times management's full-year estimates and is expected to grow its bottom line between about 12% and 14% over the next year, while RadioShack currently trades at about 22-times this year's estimate and it's expected to grow roughly 11% over the next year.

It's not a stunning bargain.

Long-Term Silver Lining
Make no mistake, I am not saying that RadioShack is on its death bed. The company has done a lot to reign-in costs, and sports a terrific CEO, Julian Day, who has a stellar reputation for running a tight ship.

Some are also speculating that large manufacturers such as Dell (Nasdaq: DELL) might want to acquire the company in order to take advantage of its vast distribution network. This is another potential catalyst.


Goldman's Game
Finally, there's the Goldman Sachs (NYSE:GS) connection. Despite the lingering near-term economic concerns, the well-known financial stalwart has scooped up 12.6% of the company.

What do these guys know that we don't? Is the company about to be taken out, or is this more of a long term bet on CEO Day and his ability to generate accelerated earnings growth at RadioShack in the coming years?

These are all positive aspects to the story, and must be considered in any analysis of the company.

The Bottom Line
Earlier this year, I mentioned that shares of RadioShack deserved a second look, and I am still bullish on the long-term prospects for the company.

However, I would probably wait for the stock to pull back before jumping in. The apparent weakness in consumer-electronic demand means that a pullback is overdue.

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