I’m tired of the gloom and doom for now. Most of my recent articles have had a negative bias to them, and after some time it becomes tiresome to always be pessimistic. I still think there are several huge issues facing the market, but I was determined to find something positive to write about today. I found it in the form of a micro-cap retailer that my good friend works for. It is called Conns Inc. (CONN).
According to Yahoo! Finance, the company operates as a specialty retailer of home appliances, consumer electronics, home office equipment, lawn and garden products, mattresses, and furniture in the United States. Its home appliances products include refrigerators, freezers, washers, dryers, dishwashers, ranges, and room air conditioners among other consumer electronic products.
Meteoric Rise
The stock is up an awesome 85% this year while the broader market is languishing near the flat line. Consumer spending in May was flat, which was the weakest result in a year as employment prospects stagnate and inflation eats away at consumers’ fledgling purchasing power. Bigger companies such as Best Buy (BBY) have been struggling, but Conns is powering ahead.
Conns has a relatively high debt burden, which has kept the stock down, but investors are optimistic that the company is getting its debt house in order. Its most recent quarter had encouraging news on this front. Delinquent accounts dropped to 7.1% of its portfolio, which was down from 8.6% last year according to Jeffries. Additionally, the total outstanding credit portfolio fell by $50 million.
It seems that the big rise in the stock was due to optimism that the onerous debt burden will continue to come down. Also, the company posted a 111% positive surprise in its most recent quarter. That was certainly music to investors’ ears. Additionally, the stock sports a book value of $11.41, which is still well above the current price of $8.64.
Is The Stock A “Buy” Now?
I would hold off buying it now and wait for a pullback to about the $7 level before buying. The stock has gone straight up lately and it still isn’t posting much store growth or same store sales growth. There is a good chance the stock will pull back a bit before possibly resuming higher. This is clearly a turnaround story that is starting off well, but further upside must come from earnings and sales growth rather than declining debt. At the very least, this is a stock to keep an eye on and would be more buyable in the $7 range.
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