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With Luxor Capital Betting Big on CONN’S, Inc. (CONN), Should You?

As several new filings with the Securities and Exchange Commission showed, Christian Leone‘s Luxor Capital Group has acquired a significant amount of shares of CONN’S, Inc. (NASDAQ:CONN). Luxor acquired in several transactions around 1.1 million shares of CONN’S. at an average price of $27.82. Following the increase, Luxor owns over 5.63 million shares of the company, the passive stake amassing 15.5% of the common stock.

Christian Leone

During the third quarter, Luxor has been constantly increasing its position in CONN’S, Inc. (NASDAQ:CONN). The fund revealed ownership of around 2.95 million shares of he company in its latest 13F filing, the stake being reduced by 16% during the second quarter. The stake of the $1.04 billion retail company has been in a free fall since the beginning of the year, losing around 63% year-to-date, which, however, can be viewed as an opportunity to purchase the stock while its cheap, a similar, bullish trend being noticeable among other investors.

Among the funds that we track at Insider Monkey, most of the top shareholders of CONN’S have raised their exposure during the second quarter. David Einhorn‘s Greenlight Capital increased its position by 7% to 3.5 million shares, while Daniel Gold‘s QVT Financial surged its position by 150% to roughly 762,000 shares.

Despite a significant decline of the stock, CONN’S, Inc. (NASDAQ:CONN) still looks like a good investment. The company reported revenue of $353 million for the second quarter, up from $271 million a year ago, while its EPS declined to $0.48 per share, from $0.52. In addition, the retailer its expanding its network, opening 14 stores during the last months. Being a specialty retailer, CONN’s reported solid same store growths in most of its categories, with furniture and matresses and home appliances posting the highest same store increase, of 30.3% and 19.4% respectively.

The company also operates a credit facility for its customers, which is considered one of the weak points of the company. For the second quarter, the revenues from credits went up by 37.8% to $64.3 million, with the portfolio balance surging by almost 40% to $1.18 billion. However, the company also had to expand its provision for bad debts to $18.3 million, due to higher than expected deliquency, among other reasons.

In comparison with its peers from the electronic stores retailers, CONN’S, Inc. (NASDAQ:CONN) trails a P/E of 10.80, which is one of the highest in the industry, It also has one of the highest returns on equity, of around 16.80%.

To sum up, CONN’S, Inc. (NASDAQ:CONN) might represent an attractive investment if it manages to fix its issues with the credit facility, which could be why Luxor and other investors are betting on the company. CONN’s falls under the category of stocks that Mr. Leone likes – distressed companies. So far, the fund has had good returns, with over 17% gain during the last year, which is one more reason to trust Mr. Leone’s ‘bulishness’. However, the analysts also seem to be optimistic on the company, CONN’s consensus rating being ‘Overweight’ and average target price amounting to $42 per share.

Disclosure: none

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