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Summary

  • Conn's is inexpensively valued based on 2015 earnings estimates and earnings growth potential.
  • David Einhorn of Greenlight Capital is one of the better hedge fund managers out there.
  • Conn's financial efficiency ratios are decent.

The last time I wrote about Conn's, Inc. (NASDAQ:CONN) I stated, "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." Since the last article it popped 2.51% versus the 0.34% gain 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 10.34% and is losing to the S&P 500, which has gained 14.98% 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

I 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 9.48 is currently inexpensively priced for the future. 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 (0.7), 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 fundamental metrics for the company for when I wrote all articles pertaining to the company.

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

10May14

41.19

16.22

9.48

4.34

65

0.70

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

10May14

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 muddling in middle-ground territory with a current value of 45.57. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($41.19), I'm looking at $43.51 to act as resistance and the 50-day simple moving average (currently $39.01) to act as support for a risk/reward ratio which plays out to be -5.29% to 5.33%.

Recent News

  1. Greenlight Capital has taken a medium sized investment in the company. The short interest in the company is 35% and there could be a lot more short covering to come in the stock which can boost the share price.

Conclusion

David Einhorn of Greenlight Capital is a money maker and value-oriented type of guy. There is no doubt he sees deep value in Conn's after the deep selloff a few months ago and wants to capitalize on it. Fundamentally the company is inexpensively valued based on future earnings estimates and based on next year's earnings growth potential. Financially, there isn't a dividend to speak of right now and the financial efficiency ratios are decent. On a technical basis I believe the stock may have a little downside to it in the short term as the RSI has been in a downtrend since 22Apr14. Due to the bearish technicals, no dividend, and overall market craziness, I will not be pulling the trigger here right now.

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: Greenlight Capital Takes A Slice Of Conn's