When investors think of consumer electronics, most think of industry leader Best Buy (NYSE:BBY) or perhaps Amazon.com (NASDAQ:AMZN). A better stock play to capture consumers, who are expecting to spend more than last year, is hhgregg (NASDAQ:HGG), a regional retailer of consumer electronics and appliances. It currently operates 118 stores and has plans to substantially increase that total over the next few years.

Growth story
Unlike retailers closing stores, hhgregg believes now is a great time to expand. Reduced rental rates and an excess supply of empty retail stores are allowing the retailer to open new stores on the cheap. Specifically, hhgregg plans to open 20 to 22 new stores during fiscal 2010 and another 40 to 45 new stores in fiscal 2011. In the next two years, hhgregg will extend its reach into new markets including Baltimore, Philadelphia, and Tampa.

There's more to its story than simply opening new stores. hhgregg has a profitable store model that produces healthy profit margins in a highly competitive industry. The retailer adheres to its prototype format when opening new stores. This strategy minimizes costs and provides consistent operations from store to store. Moreover, the retailer focuses on higher-end service and products in order to avoid having to compete on price with lower-cost competitors.

Coupled with its aggressive store opening plans, hhgregg is poised to deliver robust earnings growth for the next several years. Indeed, analysts estimate that hhgregg will earn $0.95 in fiscal 2010 and $1.22 in fiscal 2011.

Near-term risks
Despite its long-term growth opportunities, hhgregg could be in for some tough times in the next quarter or two. American consumers remain tight-fisted with their cash, and that is hurting revenue growth and same-store sales at most retailers. As a result, larger competitors appear to be going after market share with lower prices. Those price cuts in consumer electronics and appliances could negatively impact its own and hhgregg's profit margins in the upcoming holiday season.

Still, hhgregg compares favorably against comparable electronics retailers across some key metrics:

Company

Trailing P/E

5-Year Estimated
EPS Growth

TTM Gross
Margin %

ROE %

Best Buy

17.0

12.4%

24.8

17.5

Conn's (NASDAQ:CONN)

12.0

13%

33.5

6.3

hhgregg

15.7

18.3%

31.0

33.1

RadioShack (NYSE:RSH)

10.3

8.7%

44.8

22.4

Sears Holdings

n/a

10%

27.4

(0.2%)

Source: Capital IQ and Yahoo! Finance as of Sept. 30.

Be patient
While hhgregg's shares are up 95% year to date, they're about 15% below their 2009 high, which was reached in August. The recent sell-off may point to investor worries of a soft holiday season. Looking beyond the short term, however, shows that hhgregg shares trade at just 14.3 times fiscal 2011 EPS estimates. That valuation may not last as we get closer to the holiday season, and investors begin to factor in stronger earnings growth next year.

For additional reading:

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Fool contributor Rob Plaza does not own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.