Conn's Inc (CONN) Collapse a Boon to Short Sellers, Option Bears

Conn's Inc (NASDAQ:CONN) hit a four-year low after a disappointing earnings report

Jun 2, 2016 at 10:47 AM
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Retail stock Conn's Inc (NASDAQ:CONN) is selling off today, last seen 23% lower at $9.01, after the company's disappointing first-quarter earnings report. CONN also announced Lee Wright will replace Tom Moran as chief financial officer later this month. The shares earlier hit a four-year low of $8.68, and have now lost more than three-fourths of their value in the past 12 months. This isn't bad news for everyone, however, as CONN is a favorite among short sellers and bearish options traders. 

By the numbers, short interest makes up roughly 39% of CONN's float, and at the stock's average daily volumes, it would take these bears nearly 17 days to cover their positions. Even more troubling for shareholders is the fact that CONN stock has continued to fall, even though short interest has steadily declined after peaking in March 2015 -- potentially pointing toward underlying fundamental weakness in the shares. Today, the stock has found a spot on the short-sale restricted list. 

Elsewhere, options traders have also taken a bearish approach to CONN. The stock's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) comes in at 1.89, which tops 77% of the past year's readings. This trend is continuing today, with CONN put options trading at seven times the intraday norm, and easily outstripping calls. 

It looks like Conn's Inc (NASDAQ:CONN) could be vulnerable to additional losses down the road, too. That's because the analyst community hasn't seemed to adjust to the stock's miserable technical performance, as three of six brokerage firms deem CONN a "strong buy," while none recommend selling it. Moreover, the stock's average 12-month price target stands at $19.33 -- more than double current levels. In other words, downgrades or price-target cuts could weigh on CONN in the near future. 

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