Conn's Stock Gives Every Indication Of Being Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of Conn's (NAS:CONN, 30-year Financials) shows every sign of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $21.33 per share and the market cap of $622.9 million, Conn's stock is believed to be fairly valued. GF Value for Conn's is shown in the chart below.


Conn's Stock Gives Every Indication Of Being Fairly Valued
Conn's Stock Gives Every Indication Of Being Fairly Valued

Because Conn's is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.

Link: These companies may deliever higher future returns at reduced risk.

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Conn's has a cash-to-debt ratio of 0.09, which which ranks worse than 88% of the companies in the industry of Retail - Cyclical. The overall financial strength of Conn's is 3 out of 10, which indicates that the financial strength of Conn's is poor. This is the debt and cash of Conn's over the past years:

Conn's Stock Gives Every Indication Of Being Fairly Valued
Conn's Stock Gives Every Indication Of Being Fairly Valued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Conn's has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $1.4 billion and loss of $0.83 a share. Its operating margin is 1.87%, which ranks in the middle range of the companies in the industry of Retail - Cyclical. Overall, the profitability of Conn's is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Conn's over the past years:

Conn's Stock Gives Every Indication Of Being Fairly Valued
Conn's Stock Gives Every Indication Of Being Fairly Valued

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Conn's is -1.2%, which ranks in the middle range of the companies in the industry of Retail - Cyclical. The 3-year average EBITDA growth rate is 22.3%, which ranks better than 73% of the companies in the industry of Retail - Cyclical.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Conn's's return on invested capital is 1.14, and its cost of capital is 8.55. The historical ROIC vs WACC comparison of Conn's is shown below:

Conn's Stock Gives Every Indication Of Being Fairly Valued
Conn's Stock Gives Every Indication Of Being Fairly Valued

In closing, Conn's (NAS:CONN, 30-year Financials) stock is believed to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 73% of the companies in the industry of Retail - Cyclical. To learn more about Conn's stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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