This Stock Could Short-Circuit Your Portfolio

As the retail sector increasingly demands the survival of the fittest, electronics and housewares retailer Conn's (Nasdaq: CONN  ) looks like it might be headed for extinction.

Though Conn's sports a four-star rating in our community intelligence-driven Motley Fool CAPS database, I can't understand how any investor could favor Conn's over Best Buy (NYSE: BBY  ) (two stars) or hhgregg (NYSE: HGG  ) (three stars) -- especially when you compare its key metrics to those of its rivals:

Company

Revenue Increase/Decrease (LTM)

Profit/(Loss) (LTM)

Debt-to-Capital Ratio

P/E Ratio (TTM)

Conn's (9.5%) ($0.04) 51.1% N/A
Best Buy 1.2% $3.08 19% 9
hhgregg 34.2% $1.08 22.9% 12
RadioShack (NYSE: RSH  ) 4.6% $1.68 43.2% 9

*All data from Capital IQ, a unit of Standard & Poor's.

Best Buy and hhgregg are both profitable, with low debt-to-capital ratios; hhgregg can also boast a robust annual revenue increase, despite the weak economic environment. Either of those retail investments looks far more reasonable than Conn's. Even RadioShack managed to eke out a revenue increase, anemic as it may be, and a profitable year.

It's difficult to find a silver lining in Conn's metrics, and its debt-to-capital ratio of 51.1% is uncomfortably high, given its dwindling sales. Although some investors' positive outlook may reflect a 5.2% increase in Conn's fourth-quarter same-store sales, its comps had plunged 31.7% in the same period the year before. Talk about an easy comparison.

These retailers all vie with one another, but their competitive landscape stretches far beyond the pure-play space. Discounters like Wal-Mart (NYSE: WMT  ) , Target (NYSE: TGT  ) , and Costco (Nasdaq: COST  ) all peddle low-priced electronics to shoppers, luring potential customers away from Conn's and its peers.

Last September, Conn's made my list of stocks to avoid. Fellow honoree Borders has already sunk into its bearish bankruptcy thesis. Conn's may not face quite so dreadful an outcome, but it doesn't seem bound for impressive growth, either.

Conn's shares jumped 10% yesterday, suggesting that somebody must feel a bit positive about its prospects. I definitely don't.

What's your take on Conn's? Am I missing some element that helps this retailer outpace its rivals? Share your bullish case for Conn's in the comments box below, or add Conn's to your watchlist to keep an eye on ongoing developments.

Best Buy, Costco, and Wal-Mart are Motley Fool Inside Value picks. Best Buy, Costco, and HHGregg are Motley Fool Stock Advisor recommendations. Wal-Mart is a Motley Fool Global Gains selection. Wal-Mart is a Motley Fool Income Investor pick. Motley Fool Options has recommended a diagonal call position on Wal-Mart. The Fool owns shares of Best Buy, Costco, RadioShack, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned; for more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On April 05, 2011, at 4:41 PM, blendersoup wrote:

    The debt to capital ratio comparison is not meaningful since Conn's extends credit and the others don't. Conn's also trades at a steep discount to book value while the others don't. Did you factor these into your analysis?

  • Report this Comment On April 05, 2011, at 5:22 PM, berrygeorge wrote:

    Excellent point. Book value is meaningful to a possible buyout. That's not out of the question.

    Plus when investing "or gambling" these days, what time frame are you talking about. 3 months, a year, 5 years ?

    Will Conn's be taken private ? Is the short squeeeze on right now ? 80 pecent of the float is short !!!!

    with a book value triple the share value.!!!!

    That is not usually the case.Totally unusual cicumstances.

    This is not a Chinese microcap - this is an American company that has been in business for 121 years !!!

    I think it would make a great 3 to six month investment. (as a start).

    I see 8 to 10 per share within their next earnings release. (much of it riding a short squeeze).

  • Report this Comment On April 06, 2011, at 11:30 AM, blendersoup wrote:

    The book value is not triple market value. It is about double.

    This stock will not hit $8 within the next earnings release, which will be next month.

    Year over year sales are down with not enough cost-cutting to make much profit.

    What makes you think this is a short squeeze? I have not seen any appreciable drop in the short interest over the past few days.

    The short interest on Conn's has been at high levels forever.

  • Report this Comment On April 08, 2011, at 5:48 AM, alorchip wrote:

    Bullish case rests in part on insider buying, CEO and CFO of significant shares in last few days.

    If things look so bad, why would they buy?

  • Report this Comment On April 08, 2011, at 11:46 AM, blendersoup wrote:

    10,000 shares? 20,000 shares? You call that significant? Check some of the past purchases by insiders. Like the ones when the stock was in double digits.

  • Report this Comment On April 08, 2011, at 1:49 PM, berrygeorge wrote:

    The high was 6.91 today alone.

    Are you saying another 1.09 is out of the question by next month ?

  • Report this Comment On April 08, 2011, at 1:58 PM, blendersoup wrote:

    Check the price lately? You won't see $8 next month or the rest of this year. What would drive the price to $8.

    Have you figured out book value yet?

    How about the float %?

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