I just don't get why investors would invest in electronics retailer Conn's (Nasdaq: CONN).

The company's most recent quarterly results revealed that its profits have taken a beating because of higher delinquencies in its credit segment. Conn's relies an awful lot on extending credit, offering customers several different credit plans. Its latest Form 10-K says that in the last three fiscal years, Conn's financed 61% of sales through one of its two credit programs -- right in line with its historical averages.

Surely, the subprime debacle taught us all about the perils of extending credit and indulging in too much debt. Unfortunately, debt is another area in which Conn's excels.

Let's compare some data from Conn's and a similar company, RadioShack (NYSE: RSH):

Company Name

Revenue Increase/Decrease (LTM)

Profit/(Loss) (LTM)

Debt-to-Capital Ratio

P/E Ratio (TTM)











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

I'd usually stay away from RadioShack shares, but Conn's looks even riskier. While many electronics retailers (and Conn's rivals) like Best Buy (NYSE: BBY) have gained market share since the demise of Circuit City, Conns hasn't been able to follow suit. In fact, it looks like things are just getting worse.

Conn's debt-to-capital ratio would look more manageable in a company showing healthier financials. Indebtedness becomes increasingly risky when it's coupled with plunging sales.

Instead, investors should look for retailers that show more promising characteristics and stronger fundamentals:

Company Name

Revenue Increase/Decrease (LTM)

Profit/(Loss) (LTM)

Debt-to-Capital Ratio

P/E Ratio (TTM)

Best Buy





Wal-Mart (NYSE: WMT)





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

Best Buy looks downright tantalizing with its robust sales growth, hefty profitability, and a low multiple. Wal-Mart is also a highly profitable company with rising sales (and far more brand recognition than Conn's). Both Best Buy and Wal-Mart have manageable debt loads, given their business strengths and solid brands. And since both sell electronics and appliances, both also pose a major competitive threat to a company like Conn's.

Whether Conn's eventually follows former rival Circuit City into oblivion remains to be seen. Back in 2008, I thought investors could kiss poorly run retailers such as Borders (NYSE: BGP), Talbots (NYSE: TLB), and Circuit City goodbye. As you can see, only Circuit City has gone belly-up so far. Still, beleaguered retailers don't have to go bankrupt to cause shareholders pain; plunging share prices or gut-wrenching volatility can take their toll, too. Conn's may deliver lots more trouble ahead.

Are those who invest in Conn's just conning themselves? Do you have a bull case for this stock? Sound off in the comments below.

Best Buy and Wal-Mart are Motley Fool Inside Value recommendations. Best Buy is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a bull call spread position on Best Buy. The Fool owns shares of Best Buy 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. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.