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Summary

  • Big drop-off in the stock back in February reset investor expectations.
  • The company is inexpensively valued and has great earnings growth potential.
  • Financial ratios are improving.

The last time I wrote about Conn's, Inc. (NASDAQ:CONN) I stated, "Due to the bullish technicals, low valuation based on earnings, and low valuation with respect to earnings growth I will be pulling the trigger for a huge batch right now." Since the time the article was published, the stock popped 15.49% versus the 0.31% drop the S&P 500 (NYSEARCA:SPY) posted. Conn's is a specialty retailer of durable consumer products, and it also provides consumer credit to support its customer's purchases of the products that it offers.

On March 27, 2014, the company reported fourth quarter earnings of $0.74 per share, which missed the consensus of analysts' estimates by $0.04. In the past year, the company's stock is down 8.1% and is losing to the S&P 500, which has gained 20.53% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 15.82, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 9.25 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.34 per share and I'd consider the stock inexpensive until about $65. The 1-year PEG ratio (0.68), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 23.24%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 23.24%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 22.5%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to it.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

10Mar14

34.79

15.19

9.87

3.53

53

0.44

34.75

09Apr14

40.18

15.82

9.25

4.34

65

0.68

23.24

Financials

On a financial basis, the things I look for in general are the dividend payouts, return on assets, equity and investment. The company does not sport a dividend to speak of but is sporting return on assets, equity and investment values of 8.4%, 17.1% and 9.7%, respectively, which are all respectable values. In this particular instance, I will forego the dividend aspect of the financials because the stock is in my growth portfolio; and in the growth portfolio a stock does not have to have a dividend. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

10Mar14

0

0

8.2

16.1

9.0

09Apr14

0

0

8.4

17.1

9.7

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock bouncing off of oversold territory since 20Mar14 with a current value of 54.66. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line above the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($40.18), I'm looking at the 50-day simple moving average (currently $42.24) to act as resistance and $36.64 to act as support for a risk/reward ratio which plays out to be -8.81% to 5.13%.

Recent News

  1. The company experienced excellent comp stores sales. The company did ante up on the risk a bit with the in-house finance option (which is to blame for the huge drop back in Mid-February) but it did boost sales to the tune of 33%.
  2. The company reported fourth quarter earnings and revenues which missed estimates. Earnings were $0.74 per share on revenue of $361.1 million, missing by $0.04 per share and $1.53 million respectively.

Conclusion

Though the company missed expectations, earnings were 57% higher in the fourth quarter. Fundamentally, the company is inexpensively valued on next year's earnings and on earnings growth potential while short and long-term earnings growth expectations are excellent. Financially, the ratios have increased from the previous quarter. Technically, the stock is experiencing bearish momentum and may be taking a breather. Due to the bearish momentum, excellent valuations, and increased financial ratios I will be pulling the trigger on this name right now but only for a small batch.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Conn's Is Up 15.5% Since My Last Article, Here's What I'm Doing Now