Conn's is a specialty retailer of home appliances and consumer electronics with a very long history. Its total revenue has grown by 200% at a compounded annual rate of 17% from $234.5m in fiscal 1999 to $702.4m in fiscal 2006 and its net income has grown by 360% (24.7%/year) during the same period. Same store sales growth during this period has averaged 9.2% per year. It is currently trading with a PE ratio about 14.8 and a forward PE ratio about 12.2. This company can grow itself by both opening new stores and selling more at existing stores. It currently has only 58 retail stores located in Texas and Lousiana. Therefore it has plenty of room for further expansion and is still in the very early stage of its long term growth. I recommend you to buy this growh stock in your non-retirement account and you will get a compouned return about 15-20% annually for a very long long time even its current PE is not expanding in the future. What is this company's strength in a highly competitive retail market? According to its 10-K, it is outstanding in terms of customer satisfacting rate. Its flexible financing alternatives and same day delivery capabilities also help this company to succeed in this market. Its balance sheet is very strong. This company has very little debt. Its valuation is much cheaper comparing with its major rival Best Buy (BBY). CONN's forward PE ratio is only 12 against BBY's 17 with approximately the same growth rate.
Operating margin (Conn's vs Best Buy)
Conn's | Best Buy | |
2002 | 9.5% | 5.1% |
2003 | 8.8% | 4.8% |
2004 | 8.4% | 5.3% |
2005 | 8.6% | 5.3% |
2006 | 9.1% | 5.3% |
Gross margin (Conn's vs Best Buy)
Conn's | Best Buy | |
2002 | 38.4% | 20.0% |
2003 | 37.9% | 23.6% |
2004 | 36.4% | 23.9% |
2005 | 36.6% | 23.7% |
2006 | 35.5% | 25.0% |
SG&A ratio(Conn's vs Best Buy)
Conn's | Best Buy | |
2002 | 28.3% | 14.9% |
2003 | 28.2% | 18.8% |
2004 | 27.1% | 18.6% |
2005 | 27.0% | 18.4% |
2006 | 25.9% | 19.7% |
Same-store growth rate(Conn's vs Best Buy)
Conn's | Best Buy | |
2002 | 15.6% | 4.9% |
2003 | 1.3% | 4.3% |
2004 | 2.6% | 7.1% |
2005 | 3.6% | 2.4% |
2006 | 16.9% | 1.9% |
Conn's depreciation vs capital expense (thousand)
2003 5,411 15,070
2004 6,654 9,401
2005 8,777 19,619
2006 11,271 18,490
(Comment: unfortunately this number is not good for Conn's. I guess that Conn's needs to spend extra to open new stores.)
Conn's inventory turnover rate (inventory / cost of goods sold)
2002 15.1%
2003 16.7%
2004 17.1%
2005 17.6%
2006 16.5%
(Comment: this is number is quite stable and indicates there is no red flag here)