8. The company is small and only followed by four analysts at smaller research firms. All of them have hold ratings on Conn's. Only a few months ago, there was a buy, overweight and hold recommendation on Conn's. The lack of analyst coverage and the increasing negative coverage are in agreement with rule 8. Meets rule 8.
7. Conn's is up 26% from their 52 week low but down 67% from their 52 week high. RSI is below 30. Conn's also had a large sell-off after their last earnings report. Meets rule 7.
6. Current ratio is 4.2. Meets rule 6.
5. Does provide financing for its buyers but this does not make it a financial company. However, they recently received litigation from the state of Texas alleging that they deceived their buyers. I am assuming this relates to their financing operations. They charge high interest rates for their financing that may have not been previously disclosed as clearly as the state of Texas would like. I understand this risk for Conn's and am not too worried. The Republican dominated state of Texas, where Conn's is predominately based, is not likely to go too crazy with legislation that may hinder future financing operations at Conn's. Conn's will just need to write their financing terms in more plain language, but good credit customers will continue buying products from them. Meets rule 5.
4. LTD to Equity is .37. Meets rule 4.
3. Retained earnings are positive and have increased yoy for the past four years. Meets rule 3.
2. No. Does not meet this rule. Conn's has been in business since 1890, so I do not think that I need to worry about them squandering their money in one big mistake anytime soon. Although this is the second most important rule, I believe that their p/b makes up for it.
1. P/B is .39. They are trading at way below their intrinsic value. Having a p/b this low creates a huge margin of safety for an investor. The company just has to start making profits again, and this stock has a big potential for a rise. The company is forecasting profitability next quarter. This quarter's loss would have been a lot less if Conn's did not include their litigation expenses, a one time expense. Their loss from continuing operations was hardly big enough to warrant this solid company to trade at .39 times it book value of equity.
Conn's is a big value play right now.
Disclosure: I am long Conn's. Before considering this as an investment, consider the investment in the context of your total portfolio. Talk with your financial advisor before making any investment decisions suggested on this website.
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