Image Source: Conn's.

What happened

Shares of retailer Conn's (NASDAQ:CONN) soared on Wednesday following an analyst upgrade featuring a price target well above current levels. At 11:45 a.m., the stock was up more than 19%.

So what

Stifel Nicolaus upgraded Conn's from neutral to buy, with a price target of $16 -- nearly $10 higher than the stock's 52-week low and $4 higher than levels reached following the upgrade. Conn's surged earlier this month when it reported its second-quarter earnings, despite miserable results and guidance. The stock is now up about 72% over the past month.

Conn's stock has been on a downward trend since early 2014, when trouble in its credit business forced the company to tighten up its lending standards. Its credit business is still posting major losses, and the segment's net loss more than doubled year-over-year during the second quarter. Tighter lending standards have also led to a slump in comparable sales, a double whammy that has decimated Conn's profitability.

CONN Chart

CONN data by YCharts

Now what

Putting a value on Conn's is tough because its credit business remains such a mess. Unlike typical retailers, Conn's finances the bulk of its customers' purchases in-house. This setup blew up in Conn's face in recent years, and at this point, there's no sign that the situation is improving.

Stifel believes that the stock fell too far, and it may be right. But investors would be wise to fully understand the risks associated with Conn's credit portfolio before plunging into the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.