Goldman Sachs Buys Huge Stake in RadioShack

Through SEC documents filed Monday we learned that Goldman Sachs Asset Management has bought a 12.6% stake in electronics retailer RadioShack (RSH). Normally this would not be very newsworthy, as the largest asset management firms usually have big stakes in companies that require reporting. Fidelity is the largest mutual fund manager and is on top ten institutional holders lists all the time. What is interesting about this Goldman disclosure is that they bought a lot of RSH and did so very quickly.

As of March 31, 2007, with RadioShack trading at $27 per share after being the best performer in the S&P 500 during the first quarter, Goldman owned just 1,755,884 shares (about 1% of the company). In a little more than two months they have increased their holdings by a factor of ten to become the second largest holder (behind Fidelity’s 15%) and that news helped send the stock up nearly 2 percent on Monday.

Should investors go out and buy RSH on this news? Not at all. Such heavy buying explains why the stock has remained strong in recent weeks. Given that Goldman filed with the SEC, we can assume they are done buying large blocks of stock. Investors in RSH who own it for the potential for further earnings per share gains (above current estimates) are justified, but a purchase just for the sake of following Goldman is a bit too late.

Recently I trimmed some RSH positions in accounts where it got to be a top holding. I still expect the stock to move toward $40 per share, but the bulk of the gains for 2007 are likely behind us, unless something unforeseen happens. Interestingly, I have been looking closely at the other electronics retailers recently and RSH is not the only one that looks attractive from an investment standpoint. Perhaps I’ll go into more detail in a future post.

Full Disclosure: Long shares of RSH, as well as January 2009 $10 LEAPS