CONNS has opened 9 new units since November bringing the total to 105 units.Only 52% in Texas. And just 20 or so in Houston, which has shown no problems to date.As they lower their static loss rate, EPS will ramp exponentially due to the huge retail operating profit the company is now running
Yes, I think that might be the risk of this stock. If recession occurs (some estimate 1/3 chance), this could be in trouble. Slide 9 of their latest ABS securities said "Store four‐wall operating margin can withstand 50% sales decline and remain profitable". and slide 8 "All existing stores are profitable". I am not sure if this could be true, but they say it is.
Anvboy, I posted a response as a headliner.
But basically, you are right, CONN is best looked at as a trade, as many many individual stocks whose fortunes and share prices fluctuate highly on economic trends and cycles.
I guess the broader question is, where are we in the cycle. Will we avoid a recession? Will we have a mild recession? Severe. Depression.
Right now CONNs is priced at levels of a moderate recession, but we are not yet in a recession. Some of their markets may be, but other parts of their business are doing quite well. And again, the price is down to multi year lows, so a lot of the bad news has been "discounted".
From an "investor" standpoint, regardless of what one thinks of CONNs, these are great times to buy companies as fear is high and valuations are low. Contrast this with times where fear is low, and risk is high... When CONNs was trading at 65 with a PE of 15 on $4.00 earnings expectation. Now its at a cash adjusted PE of 4-6.
How does one get a double or triple on a stock. This is not what I am after, because I sell out much sooner... but they come many a time from buying the fear and pessimism and selling later in the other part of the cycle. CONNs has done this at least 3 times in the past, we will see if it does it again this time.
Warning - Clearly IF the US economy tanks, which has yet to happen, the risk CONNs credit losses expands exponentially. But as of today, the US economy has not tanked, there is fear that it will, but it is not a fact yet.
Like all stocks there is risk, and things could go wrong, but the timing of a buy at these levels is much better timed than any time over the last five years so much of the risk has already been discounted by the market.
I like buying "high risk, high reward" at a discount. That is the bullish case for CONN.
Could I be wrong, of course, NO ONE knows the future, we just make our best "guess" based on what we know, see, and believe. Its also a question of how much risk tolerance one has, and how much capital is exposed to any given stock.
If one is a trader, one does not need to be right long term. In other words, if CONN bounces 20% from here, and one sells, they could tank at a further date, and the trade would have been profitable regardless of the longer term validity of their business model.
Good luck to all.
I am a trader more than an "investor". So I like the risk and like the volatility. If you survived the fall from 70 to 12, and look at it as a "cyclical growth stock", then there is a bullish case that its at multi year lows while continuing to build out its business which in many ways is healthy (their furniture/mattress business is high growth and very high margin + their appliance business is healthy). Both of the aforementioned businesses have lower credit default rates and 2X margins than the home office/small electronics businesses they faced out.
I think its clear they have taken and continue to take measures to tighten credit standards.
For these reasons, the price of 12-13 with 3-5 cash, and earnings power of $2.00+ a share, and plenty of growth makes them ultra ultra cheap IF and its a big IF they can withstand the oil sector depression which is a mixed blessing for them. A mixed blessing because low oil is highly positive for low income people discretionary income, if they have jobs they have more discretionary money. So their is some hedge there. Overtime as they continue to grow very aggressively outside of oil impacted areas, their exposure to oil regions will go down as percentage of income. What will be tested is there model, whether selling goods to low income people with credit that have few options to buy elsewhere is a good business or not.
Again, I go back to Elektra in Mexico, that is their business model, and they have done very well with it overtime. Sure they have had horrible moments, but overtime, IF they manage the downturns right, the business on the good years more than makes up for the bad year.
Sentiment: Strong Buy
oil is going to 10-11 dollars.this stock is going to file for Chapter 11 by next year.I own rcii and their virtual leasing model does not take into account that a serious recession is looming and that all the stores rcii has their kiosks in like Conns,Sears,hhgregg,etc. are going out of business.The rent to own industry needs to consolidate.Nature will take its course through attrition.
Good note. I got burned owing this stock and it was my lack of how the money flowed through this company that took me by surprise. I now understand that process and see this stock as a trade, not an investment. I buy, sell the quick moves, buy back when it comes back then sell it again. I use puts and calls to help me with these trades. If I had made the decision to trade this stock in the beginning I would have avoided being burned. I do not trust this management team, and all I recommend to those that want to buy and hold is make sure you understand their business model, how the money flows, how the business is booked and earnings are reported. IMO, this is stock broken, and with every good story you will get another one that damages any momentum created. Just be careful with this stock, It has some of the same characteristics the market experienced with home equity loans and poor lending that took this market for a big ride. Good Luck to you, do your DD, but I will continue to question the posts that avoid the real issues within this company. It is credit, the size, caused by opening new stores. Their business model cannot last, it is flawed. The shorts also know it.
Anvboy, just curious why all the negativity? You were burned by CONN and want to save others from the pain? CONN is not the only stock that is down, it is very high beta, and you are right, the exposure to oil states would seem dangerous. But, many many stocks are trading at multi year lows, CONNs may have fallen more than others, but it certainly is not alone. Much of its movement down is not based on fundamental, its based on a dropping market and fear.
Over the years, even accounting for credit losses, CONN has made $$ and grown. I, and others on this board, contend that odds are in our favor at these levels. At $25, $35... who knows. but at 12-13 range, there is an awful lot of bad news priced in already. The credit book is likely to improve regardless of oil because of their tightening of underwriting and seasonality. The short to midterm outlook is that it goes higher.... One clue is how it traded yesterday, for a high beta stock, it did pretty well, and today it went up. The low is probably in, and when it breaks 15 it could explode higher.
We will see what happens. I remain long... though I trimmed a bit of my position today, hoping to buy lower next week, but I am afraid I may not get a chance...
It's fraud boy you should ignore and chuckle for good humor knowing he's losing his #$%$ trying to trade something that should be owned instead...LMFAO
And from a static pool standpoint, 2012,2013 and 2014 only comprise less than 10% of Originations at this stage so the numbers will improve quickly from here
The best way to look at this is the static pool loss analysis on the December presentation (page 37) which shows the terminal charge off amounts after recoveries for the past 10 years. Static loss rate is: "The percentage computed is calculated by dividing the cumulative amount charged off since origination, net of recoveries, by the original balance of accounts originated during the applicable fiscal year. Period 0 is the year of origination."
If you look at 2015, there is a materially lower loss rate than in 2013 and 2014 (during the famous loose lending practices of Brian Taylor to goose revenues). Those days are over. The static loss rate is down 1.3% so far in 2015 ending October 31st and I've shown you the 60 day delinquency rates since October 31st to January 31st which is only 2.9%. These lower loss rates are going to quickly have as materially positive impact on EPS. The bad debt expenses have been 200M per year the past couple of years and could easily drop 100M dollars if these guys get back to 2012 static pool losses.And it appears they are on their way. The market just doesn't seem to know it yet. And there is no sales problem or gross margin problem either. Its mind boggling that there is short thesis out there that this company is in trouble and going under when the numbers clearly show that it is in recovery mode instead. I think we are looking at a 50+ stock when the market figures it out..I've been a bull for a long time because I'm a long term holder. I was #$%$ at what Brian Taylor did to street confidence and to the lending practices.. I like Norm Miller. He is a straight shooter and letting the numbers do the talking. If they get a good interest rate on the next ABS round, this thing is really going to motor North. Hope this helps.
another 30 point to go before it hits last June's share price.....oh..that doesn't include the gain in share price for the 6M share stock buyback at 24/25
I wonder what the delinquency rate on August origination only is? That is the only month of approx 6 months of length thus far...right? Am I understanding this correctly?
It comes from the ABS presentation on the company website. I think its page 25..it shows that the current 60 day delinquency rate for the current 690M receivables book starting July 31st and ending Jan 31st is only 2.9%.."Simple, secured installment sales contracts with average account remaining outstanding for approximately ~14 months"
So half way through this receivables cycle, delinquency rate is only 2.9%..that's awesome
mirskitchen flashes so many stats about CONN you will get a huge headache trying to make meaningful interpretations, so other than the ignore feature on this board, you just learn to read and then LYAO - Read for entertainment only.