Is Conn's Stock's Risk Worth the Reward for Investors?

CONN has nearly doubled in price over the past year

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Conn's Inc (NASDAQ:CONN) is a specialty retailer currently operating over 150 retail locations in the United States. On Dec. 28, Conn’s senior leadership team announced that the retailer will host a virtual Investor Day on Jan. 20. As part of the event, Conn’s will host a webcast followed by a live question and answer session for shareholders.

Conn’s stock has almost doubled in price during 2021, up 96% year-to-date. The equity has experienced a choppy pullback from its three-year high of $31.48, touched on June 4, but the 320-day moving average helped capture some of this negative price action, launching it back up the charts in December. 

conn dec 30

Moreover, Conn’s stock has an incredible valuation. CONN trades at price-earnings ratio of 5.48 and a price-sales ratio of 0.38, which are both very attractive values. However, Conn’s fundamentals offer very little security. The company has $856.4 million in total debt and only $10.6 million in cash on its balance sheet. Conn's reported a slight decline in revenues and a $17 million decrease in net income for fiscal 2020.

Nonetheless, Conn's has recovered fairly well since then. The company has grown its trailing 12-month revenues 12% and increased its trailing 12-month net income by almost $130 million. Although its fundamentals could cause problems long-term, CONN remains undervalued by most metrics, potentially offering an opportunity for short-term investors in 2022.

With all this said, now might be a good opportunity to speculate on CONN with options. The security sports a Schaeffer's Volatility Index (SVI) of 58% which sits in the relatively low volatility 16th percentile of its annual range. In other words, options traders' volatility expectations aren't that high at the moment. 

 

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