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Tonney is now a Quant Analyst in the commodity and energy sector. He enjoys playing numbers and models in a broad range of markets. After tracking a great number of stocks, he is now a firm believer of long term value investment, and pursuing to find the "GREAT COMPANY" to invest for... More
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  • Key reasons for HGG being non-performing 1 comment
    Apr 23, 2011 11:44 AM | about stocks: HGG
    Key Reasons for HGG non-performing going ahead
     
    1) Ever increasing Online Shopping for Home appliance. TOO MUCH COMPETITION from Online sellers. Situation will be worse in future.
     
    2) Flying gas prices will stick buyers at home. No sigh gas price will come down.
     
    3) Narrow range of products in HGG shelf cannot attracts enough people. This mirrors the HGG weak pricing capability and low risk taking ability.
     
    Conclusion: HGG can hardly be the next Bestbuy with the current big-box business mode. Sales will grow at maximum 10%, but margin is razor thin and will grow slower. Current price is tempting but future upside potential is limited.  
     
     


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Stocks: HGG
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  • Joseph Greiner
    , contributor
    Comments (10) | Send Message
     
    I agree that there are competitive forces at work against HGG, however, I am not sure that the points you listed above, provide any additional context not already addressed by the market.

     

    1. Yes there is a broad base of competition from online retailers, discount retailers, and electronics retailers. I would argue though that the flexible pricing approach by HGG enables them to continuously move inventory. Additionally, the current excess real estate inventory and struggles of best buy would enable HGG to continue to expand relatively unimpeded and with significant cost advantages. I understand the limited scale advantages, however, I am not sure how this will "worsen" in the future.

     

    2. Gas prices will affect all buyers of electronic goods. Gas prices have declined over the last 6 months, please provide a source of where you derived your gas price conclusion. I agree that the long term gas horizon is anticipated to impact retail; however, I am not sure what time horizon you are projecting over.

     

    3. Stores generally stock the product skews that customers want to buy or those that provide the best economics to the customer base they are targeting. If your argument is that the product skews are not meeting your needs specifically please elaborate as this is information that I would be extremely interested in understanding.

     

    HGG has a very different business model than BBY and is also a fraction of the size, so I am not sure the two businesses are entirely comparable aside from the fact that they are both electronics retailers. Additionally, I think 10% revenue growth at a discount with a predictable business model is quite impressive. My concerns about HGG would be related to their returns on capital, aggressive growth strategy, off-balance sheet commitments, and buy-backs.
    8 Jul 2012, 01:34 PM Reply Like
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