RadioShack stock is still trading. What's more - it has been up as much as 234% since the electronics retailer delisted from the New York Stock Exchange then filed for Chapter 11 bankruptcy in February 2015.
That's not an endorsement of RadioShack Corp. (OTCMKTS: RSHCQ) stock. Nor are we suggesting that you employ some kind of highly risky day-trade strategy in hopes of pocketing big gains on RadioShack stock.
But after all the financial trouble this company has gone through, and being delisted, why is RadioShack stock still trading right now?
The Real Value of the RadioShack Stock Price
The short answer is RadioShack stock is still trading because people will trade anything when there's money to be made off it, speculative or not.
And sometimes, companies can emerge from the other end of a bankruptcy as a viable public company again. There are several cases of bankrupt companies coming out the other end of Chapter 11.
Delta Air Lines Inc. (NYSE: DAL) did it. They filed for bankruptcy protection in September 2005 and climbed out of it in April 2007. Today, they're the largest airline by market cap in the world.
But Delta is very different from RadioShack.
Delta was filing bankruptcy at a time when several other airlines were also in bankruptcy protection. And even when Delta did come out of it, not a single share in the new company was issued to the traders playing the over-the-counter stock.
According to the UCLA-LoPucki Bankruptcy Research Database, only 14 of 85 companies that reorganized following a bankruptcy gave anything to shareholders between 1997 and 2012. That's because in bankruptcy the creditors are the first to get paid while shareholder equity is almost always completely wiped out.
RadioShack did file for Chapter 11 bankruptcy, which doesn't guarantee a complete liquidation of the company like Chapter 7, so it's not completely hopeless that RadioShack reorganizes.
But the road ahead in this RadioShack bankruptcy is going to be a challenge...
It's all but impossible that the current trading activity on RadioShack stock will yield anything meaningful long-term. Traders may bid up the price and try to find someone else to hold the bag when that stock is wiped out, but there's really little to suggest RadioShack stock has any value beyond this.
Even the company's own management said so when the price of the stock eclipsed $0.20 on fairly heavy trading volume in March. This was for a stock listed on an over-the-counter exchange with the dreaded "Q" attached to the end of its ticker symbol, the sign of a company in bankruptcy protection.
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"Equity holders of a company in Chapter 11 bankruptcy generally receive value only if all claims of a company's secured and unsecured creditors are fully satisfied," read a March 12 press release. "RadioShack said it believes that the claims of its secured and unsecured creditors will not be fully satisfied, leading to the conclusion that RadioShack common stock has no value."
That should be a red flag.
But even after that announcement the stock fell to $0.1049 a share only to claw back up to $0.2801 - a 167% gain! This should be proof enough that RadioShack stock is only being viewed as a playground for high-risk traders looking to buy on troughs and sell at peaks very quickly.
And the problems that plagued RadioShack stock in the first place are not going to go away.
E-commerce is only going to grow and put pressure on the traditional brick-and-mortars. Forrester Research forecasts that by 2018, 11% of all retail sales will be conducted online - compared to 8% in 2013, while total sales are expected to grow 57.4%.
So even for anyone who's trading this stock right now on the misguided belief that the company will reorganize successfully and give shareholders shares in a new, reinvented RadioShack, there's not much of a future after that.
Jim Bach is an Associate Editor at Money Morning. You can follow him on Twitter @JimBach22.
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