Why I'm Still Bullish on hhgregg

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Includes: BBY, HGG
by: Mark Riddix

Retailer hhgregg (NYSE:HGG) first caught my eye back on August 10th. I was impressed by the company’s business model, core philosophy, and expansion plans. The company has a great opportunity to become a rival to Best Buy (NYSE:BBY). I found the company’s stock attractive at $22 per share. The stock has had a nice run up since then and has increased to $26 per share. So, should you be buying shares of hhgregg at the current price?

For more insight into hhgregg, let’s take a look at the company’s last quarterly earnings report.

  • The company’s first quarter profit increased 85.4% last quarter. Some of this increase in profitability was due to 26 new store openings but the profit margin was still impressive.

  • Revenue increased 53.3% over the previous quarter. That’s an excellent number in any industry.

  • Same store sales were up 6.3%. This shows that the company truly has organic growth and is not just increasing sales by opening new stores ala Krispy Kreme.

  • The company’s average sales ticket is $660. That’s a 10% premium to competitors.

  • Appliance sales represent 40% of the company’s sales revenue. That’s very unique for an electronic retailer because most retailers are heavily dependent on television and video sales alone.

These are all favorable trends for the company and are signs that the company’s management is doing things right. The longtime success of hhgregg will depend upon the company’s ability to attract and retain customers.

Is hhgregg still a buy?

I was trying to wait for a better entry point to buy the stock and missed the move higher. Shares of hhgregg are up 18% since August and the company is strategically pursuing its expansion plans. The stock is a buy for investors that would like to initiate a position. Shares are currently trading at $26.03. The stock is still inexpensive based on its projected earnings growth and sales. While I would have liked to have purchased shares in the teens, it doesn’t look as if the stock will drop back to that level. An investor could feel comfortable buying shares up to $29.70 a share.

Are you a fan of hhgregg or Best Buy? Which store do you like better?

Disclosure: No positions