Keep an Eye on This Retail Stock Later in the Week

Conn’s stock could be set up as a solid turnaround play

Mar 29, 2021 at 11:28 AM
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Furniture retailer Conn's, Inc. (NASDAQ:CONN) will report fourth quarter earnings on March 31 before the market opens. Ahead of the event, the specialty retail stock will look to reverse its recent history of sharp post-earnings moves lower.

For the fourth quarter of 2020, Conn’s missed analyst estimates by a margin of $0.15 and missed expectations by a significant margin of $1.57. For the second quarter of 2021, Conn's reported a big increase in earnings, rising to $0.75 per share. The company also beat estimates by a margin of $0.88. In the most recent quarterly report, Conn’s reported an EPS of $0.25 and beat expectations by $0.01. This time around, the options market is pricing in a larger-than-usual post-earnings move of 17.4%. 

However, the last three post-earnings reactions have been to the negative, including a 21.1% drop back in June. Nevertheless, CONN is up 207% year-over-year, with its 80- and 100-day moving averages doing most of the legwork in terms of support. 

CONN options can be had for a bargain at the moment. The security's Schaeffer's Volatility Index (SVI) of 90% sits in the 14th percentile of its annual range. This suggests the equity is sporting attractively priced premiums right now.

Conn's stock still maintains potential upside purely from a value perspective. Although the company is generating no net profit at the moment, the security has an extremely attractive forward price-earnings ratio of 10.81. Over the past year, Conn’s revenues have decreased by about $110 million or 7.3%. Its net income is also down nearly $80 million since January of 2020. Although there is no guarantee that the company will resume growth, Conn’s remains an intriguing turnaround play for potential investors. Take note of their $1.2 billion debt total and, on the flipside, Conn's cash and cash equivalents total $107.82 million.

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