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Christian Leone Cashing In On CONN’S, Inc. (CONN)’s Success

According to a 13D form recently filed with the Securities and Exchange Commission, Christian Leone‘s Luxor Capital trimmed its stake in CONN’S, Inc. (NASDAQ:CONN) to 6.63 million shares from 7.59 million shares, which are held through its affiliated funds. Sales were made between June 2 and 3 and ranged between $36.10 to $39.03. That represents a more than 100% increase on the bottom end from where shares of CONN’S were trading just five months ago. Leone’s position still comprises 18.2% of the company’s outstanding common shares.

Christian Leone

Luxor Capital was launched in 2002 with an objective of investing primarily in distressed companies, in addition to employing a value-based approach. The fund has equity and fixed-income investments throughout the world, while assets under the fund’s management currently amount to $11.5 billion. The market value of Luxor’s public equity portfolio stood at $6.19 billion at the end of the first quarter, up from $4.96 billion at the end of 2014, while the finance and consumer discretionary sectors represented most of the fund’s holdings.

Christian Leone
Luxor Capital Group

At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 144% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.

The fund initiated a position in the $1.41 billion retailer of durable consumer goods and provider of credit solutions during the first quarter of 2014 with some 2.0 million shares. So far this year, CONN’S, Inc. (NASDAQ:CONN)’s stock has delivered a stellar performance, up by more than 105%. In comparison, the specialty retail industry has only appreciated by 4.18% during the same time period. The company also has a lower trailing twelve month earnings multiple of 24.62 compared to the industry’s average of 46.14. However, CONN’S, Inc. (NASDAQ:CONN)’s beta of 1.64 is higher than the industry’s 0.93.

The interesting thing about the furniture and home-appliance retailer is that it is not particularly performing as well as the action in its stock price might suggest. The first quarter EPS of $0.44 signified a fall in profits of 44% on a year-over-year basis. The $365.08 million in revenues also missed estimates by $3.45 million. Same-store sales saw a dip of 4.3% during the first three months of the year primarily owing to the prolonged port labor dispute which tightened underwriting and disrupted its supply chain, with the furniture category was impacted the most. Moreover, the credit financing business also weighed heavily on the company’s underperformance.

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