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Is This Stock Better Than Best Buy?

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Best Buy's (NYSE: BBY  ) difficulties are well known; one glance at its two-year stock chart indicates the disintegration of the electronics retailer's business strength since better days. So why have shares of a tiny rival surged beyond all reasonable levels?

Conn's (Nasdaq: CONN  ) shares have increased by a whacked-out 325% in the last year. Given the difficulties facing stronger companies like Best Buy, it's difficult to come up with a good reason for that kind of bullishness.

Granted, some of Conn's near-term sales figures have improved. For example, early in August it reported that its second-quarter net sales increased by 12.9% to $171.7 million, and same-store sales surged 21.5%.

Still, bear in mind that Conn's hasn't reported an annual revenue increase since the year ended January 2009, and it hasn't managed to report a yearly profit since the year ended January 2010.

Obviously investors believe that this retailer, which sells electronics, appliances, furniture and mattresses, and home office accoutrements, has a lot of growth ahead of it. Granted, it is small compared to mightier rivals, with only 65 total locations in Texas, Louisiana, and Oklahoma.

By comparison, Best Buy and RadioShack (NYSE: RSH  ) have blanketed the U.S. consumer landscape with thousands of stores, and even another small rival, hhgregg (NYSE: HGG  ) , operates about 200 stores in 17 states.

However, is there really room for another electronics retailer to grow in the current market conditions? The online electronics market is a major stumbling block to Best Buy and its bricks-and-mortar ilk; (Nasdaq: AMZN  ) is obviously the formidable force to contend with in the online realm. So what on earth is convincing investors to snap up Conn's shares at these prices?

Plus, here's some more risk. Conn's provides what it dubs "flexible credit options" for its customers, meaning some in-house financing as well as third-party financing and rent-to-own payment plans are built into its business plan. In the last three years, Conn's financed on average 61% of its sales under its in-house financing program.

That may be one of Conn's key differentiators, but that really might not be such a good thing. Given current uncertain economic times, that strategy could be a boon until beleaguered American consumers are no longer able to pay.

Personally, I wouldn't touch Conn's shares with a 10-foot pole right now; it's scheduled to report its most recent quarter tomorrow, and I'm mighty curious as to its tidings and how investors will react. Do you think Conn's is a good stock idea right now? Add your thoughts in the comments box below, or if you're more interested in hyper-rival, check out our new premium research report on the e-commerce behemoth by clicking here. It's must know information for not only Amazon investors, but for anyone investing in companies that compete with the online giant, and comes with a full year of guidance and updates.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Best Buy, RadioShack, and Motley Fool newsletter services have recommended buying shares of and hhgregg. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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

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  • Report this Comment On September 04, 2012, at 3:33 PM, gguybbycc wrote:

    Let's see - BBY still doing almost $1000 in sales a sf (40,000sf Stores doing $40MM). HH Gregg doing $400 in sales a sf (30,000sf Stores doing $12MM). The choice is pretty easy. The HGG dog don't hunt.

  • Report this Comment On September 04, 2012, at 7:20 PM, JTOS wrote:

    One of CONN's divisions contributing to all of 12% sales growth did so with a 73% ASP increase

    Is that sustainable?

    And a month ago they preannounced sales growth, discounting or ignoring the 6 stores they had closed with no comments on profitability

    For those as old as me, you will recall the previous iteration of this ultimately bankrupt biz model-lending money to deadbeats at rates that can't ever cover the loan loss charge offs-Ucarco

    Used cars for deadbeats!

  • Report this Comment On September 05, 2012, at 11:41 AM, skiersteve3 wrote:

    In all fairness, though conns does sell consumer electronics, much of their business is in home goods- like furniture. And furniture is something people like to try out first before they actually buy it. You'll notice conns mentions their increase in mattress sales numerous times over the last few conference calls. I bet margins on beds are way better than on tv's....long story short they are actually quite different in their business and obviously their approach.

  • Report this Comment On September 05, 2012, at 12:35 PM, TMFLomax wrote:

    Thanks everyone. I see the quarterly earnings news today, and still don't get this one's stock price (significantly higher AGAIN!), but yeah, skiersteve3, I do see that the quarterly sales appear to have been boosted by selling mattresses and furniture. (And true, beds ARE super expensive -- good points.)

    Still wouldn't want to buy this stock and still feel like the "flexible financing" is a risk as JTOS suggests.

    gguybbycc, I don't personally think HGG is a great option in the space either.



  • Report this Comment On September 05, 2012, at 1:09 PM, skiersteve3 wrote:

    I'm not saying I agree with the stock price (however I did buy some at 6.35). However, I do think it's not really fair to compare them so closely to best buy all the time, their business models are quite different. Can you imagine a home and garden section is best buy? I'm riding the wave for now and watching closely, I know this can be sustainable.

  • Report this Comment On September 05, 2012, at 1:15 PM, TMFLomax wrote:

    BBY might have to TRY a home and garden section given its current troubles... (Kidding.) Thanks for commenting, skiersteve3. And congrats on your gains from your buying price. Wow.

    Thanks for making the points that it's not as much of an apples-to-apples comparison as some of us think, so there are more differentiators there at work.


  • Report this Comment On September 05, 2012, at 1:36 PM, skiersteve3 wrote:

    by the way I meant to say *can't be sustainable

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