Did you know that CONN'S, Inc. (NASDAQ:CONN)
rose 238% in a year, adding 80% since January? The electronics retailer has shifted its focus from consumer electronics to furniture and mattresses, and this bet has clearly paid off. As one can see, this was a smart move.
However, the sole magnitude of the rise puts doubts on the prospects of the stock. The stock has performed spectacularly in an almost straight line without any significant pullback. Now, if you’ve missed this train, is there still time to get in?
Shifting away from electronics
Furniture and mattresses were a huge game-changer for CONN'S, Inc. (NASDAQ:CONN). In the first quarter of this fiscal year, same store sales for this segment rose 50.9%. Home office segment showed a 34.2% rise in same-store sales, while consumer electronics was down 0.8%.
Things are not easy in the world of electronics retail, as the field is competitive and margins are tight. Well, if we look at RadioShack Corporation (NYSE:RSH)
, the margins could even be negative. This retailer operates at a negative 1.33% margin. The company has a history of losses, and is projected to lose money in the next two fiscal years. More to this, the estimates have been spiraling downward in the last three months. The company is now estimated to lose $0.71 per share, 70% more than previously estimated.
The furniture move has helped CONN'S, Inc. (NASDAQ:CONN) maintain a very healthy 11.29% operating margin. Let’s compare it to an electronics retailer that actually does make money -- Best Buy Co., Inc. (NYSE:BBY)
. The company operates at a tiny 2.15% margin. Despite this, the shares have enjoyed a fascinating 154% rise this year.
New initiatives called Renew Blue have helped put life back in the stock. The most important move was dealing with the online part of the business which was previously in bad shape. Accepting the fact that most consumers first search online for their purchases has helped Best Buy Co., Inc. (NYSE:BBY) adapt to the new reality and put funds and effort into its online business.
Going from electronics to mattresses had a big influence on margins. In its most recent report, CONN'S, Inc. (NASDAQ:CONN) stated that gross margin from the consumer electronics segment was 29.2%, while the furniture and mattress segment had a 48.3% gross margin. This is a huge difference.
Is this enough to keep the stock going?
As CONN'S, Inc. (NASDAQ:CONN) business operates in a healthy manner, the key question is whether the shares have gotten ahead of themselves.