One of last month's most surprising winners was Conn's (NASDAQ:CONN), soaring 101% in April. There aren't too many stocks that have doubled in 2017, much less an investment that has more than doubled in a single month.

The retailer of furniture, mattresses, and consumer electronics kicked things off with a refreshingly strong quarterly report earlier in the month. The rally continued into the final week of the month, rising another 24% last week after a Keybanc analyst upgrade. 

Challenges remain for the 113-store chain, but after coming through with an unexpected profit in its latest quarter, offering up a rosy near-term outlook, and now a major analyst slapping a $22 price target on the shares, it's easy to see why April was a month to remember for Conn's shareholders. Keeping those gains going will be the real challenge now.

A new Conn's store. This is an exterior shot.

Image source: Conn's.

Shocking the world with a turnaround tale

Sizing up Conn's holiday-containing quarter may seem unimpressive at first glance. Net sales fell by nearly 6% despite a larger store count. Comps plummeted 9% during the period. However, an important point here is that the weaker sales were by design. Conn's has gotten better about dealing with deadbeat borrowers, and it has also scaled back on its product offerings. 

Net sales may be going the wrong way, but margins are improving -- ultimately resulting in an adjusted profit of $0.05 a share. Seasonally potent holiday shopping season and all, analysts were holding out for a quarterly loss of $0.12 a share. 

The outlook for Conn's keeps improving, especially since scoring regulatory clearance to offer direct loans in Texas and more recently Louisiana. Conn's can command higher interest rates on these regulator-approved direct loans, helping take some of the sting out of delinquencies that are starting to stabilize. The chain sees the negative comps continuing, but it's targeting wider margins and declining provisions for bad debts. Full-year profitability is now in play.

Bradley Thomas at KeyBanc upgraded the stock last Tuesday, three weeks after Conn's head-turning quarterly report. Thomas see favorable trends in the coming years after meeting with the retailer's management. He feels that the shift in how it handles consumer credit and rent-to-own agreements will result in higher portfolio yields, lower funding costs, and improving loss rates.

Thomas' new overweight rating and $22 price target implies 25% of near-term upside even after more than doubling through April. The retailing climate especially for brick-and-mortar chains will remain challenging, but the stock still trades well below its late 2013 peak. Momentum is clearly back in Conn's corner, but don't hold out for it doubling again any month soon.

 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.