Best Buy Co., Inc. (BBY), GameStop Corp. (GME), hhgregg, Inc. (HGG): Is This Company’s Stock Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does hhgregg, Inc. (NYSE:HGG) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell hhgregg’s story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at hhgregg’s key statistics:

Source: HGG Total Return Price data by YCharts.

Passing Criteria	3-Year* Change	Grade
Revenue growth > 30%	68.1%	Pass
Improving profit margin	(52.1%)	Fail
Free cash flow growth > Net income growth	5,190% vs. 60.6%	Pass
Improving EPS	60.3%	Pass
Stock growth (+ 15%) < EPS growth	(42.9%) vs. 60.3%	Pass

Source: YCharts. * Period begins at end of Q4 2009.

Source: HGG Return on Equity data by YCharts.

Passing Criteria	3-Year* Change	Grade
Improving return on equity	(23.4%)	Fail
Declining debt to equity	(100%)	Pass

Source: YCharts. * Period begins at end of Q4 2009.

How we got here and where we’re going
With the exception of a weaker profit margin, hhgregg, Inc. (NYSE:HGG) puts forth a surprisingly strong performance for such a hated stock. Five out of seven passing grades is nothing to sneeze at, but with a share price nearly cut in half over the last three years, we really should ask: Is the market wrong, or are these numbers completely meaningless for the future? Let’s dig a little deeper to find out.

Although hhgregg’s three-year performance has been decidedly underwhelming, it’s joined fellow brick-and-mortar electronics retailers Best Buy Co., Inc. (NYSE:BBY) and RadioShack Corporation (NYSE:RSH) in a bit of a 2013 rebound. None of these companies has actually shown progress — in fact, all three suffered same-store sales declines, and hhgregg’s took the worst fall, with its similar “comparable-store” metric down 8.3% for the holiday quarter. Since Best Buy’s same-store results were essentially flat domestically, hhgregg, Inc. (NYSE:HGG) investors ought to be seriously concerned about its long-term viability in a shrinking sector. Despite this threat, hhgregg’s shares were already moving higher during the actual holiday season, particularly after a November earnings report sent shares spiking.