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Stock Analyst Update

Cast a Wary Eye on Circuit City

The company's troubles could be the start of a vicious cycle.

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Tuesday's announcement by Circuit City (CC) could be another sign of a continued downward spiral. With the firm's future in so much flux right now, its stock is only for the most risk-tolerant investors.

The company will stop selling appliances in its stores to add more electronics and home-office products. The change, which will take only three months to implement, is a good thing--appliances take up a lot of space, require large investments in inventory, and carry lower profit margins than electronics products like DVD players, stereo speakers, and computers. Plus, Circuit City is getting killed in this category by Sears (S), Home Depot (HD), and others.

Mark Sellers does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.