BOSTON ( TheStreet) -- In addition to going by an unpretentious, lower-case name, hhgregg ( HGG) is a fast-growing electronics retailer, like the Best Buy ( BBY) of the South.

Since 2007, hhgregg has increased sales an astounding 88% annually and boosted net income 141% a year. Its stock returned 23% a year over that span, beating the S&P 500 by a wide margin.

Founded in Indianapolis in 1955, hhgregg's inaugural store sold washing machines, dryers, refrigerators and grills. Soon after, it expanded its line-up to black-and-white and color televisions. Its hallmark was, and still is, outstanding customer service, which helps explain the success of its recent expansion even with the lingering effects of a severe recession. A 110% low-price guarantee ensures that hhgregg's customers are getting the most bang for their buck.

Despite a recent run, this small-cap retail stock is still a solid investment, especially as we head into holiday shopping season. Fiscal first-quarter net income increased 85% to $2.7 million as earnings per share rose 75% to 7 cents, restrained by a higher share count. The downside to hhgregg's low-price strategy, like that of Wal-Mart ( WMT), is thin margins. The quarterly gross margin remained at 30% and the operating margin hovered in shallow territory at 1.3%. Low spreads reflect dirt-cheap prices, assuring customer growth in a consumer-challenged economy. The national unemployment rate is stuck at 9.6%.

Despite a market value of just $1 billion, hhgregg has attracted an enthusiastic Wall Street following. Of analysts covering its stock, 12 rate it "buy," seven rate it "hold" and just one ranks it "sell." A median price target of $30.30 suggests a return of 27% in the next 12 months.

Some analysts see greater upside. Small-cap-focused Sidoti & Co. offers a target of $37, suggesting the stock will gain 55%. KeyBank ( KEY) and Barclays ( BCS) expect a rise of 47% to $35. And Credit Suisse ( CS) predicts that hhgregg's stock will climb 34% to $32.

It isn't all accolades from sell-side researchers. Piper Jaffray ( PJC) downgraded hhgregg to "neutral" yesterday and cut its target to $23, implying the stock is overvalued. Shares tumbled 5.7% as indices rallied almost 1%. hhgregg still has notable short interest, with 27% of its float sold short. By comparison, Bloomberg clocks average short interest for the computer and electronics retail industry at 4.8% and average short interest for the home improvement retail industry at 1.9%. So, plenty of traders are betting on a pullback in hhgregg's stock.

Shares trade at a forward earnings multiple of 14 and a sales multiple of 0.6 -- 13% and 33% discounts to peer averages. A trailing earnings multiple of 25, book value multiple of 3.8 and cash flow multiple of 20 reflect premiums of 41%, 26% and 66% to retail industry averages. The stock's PEG ratio, a measure of value relative to predicted long-run growth, demonstrates its value. A figure of 0.6 suggests a 40% discount to fair value. Given that the stock just pulled back 6%, it's worth exercising caution. But, fundamentals remain attractive.

Quarterly comparable-store sales rose 6.3%, boosted by a 16% jump in appliance sales. hhgregg opened 26 stores in the quarter and plans to open 12 more by year-end and 40 to 45 total in fiscal 2011. Despite a rapid expansion, its balance sheet is sound, holding $70 million of cash and $88 million of debt, equal to a modest debt-to-equity ratio of 0.3. TheStreet's stock model recently upgraded hhgregg to "buy."

-- Written by Jake Lynch in Boston.


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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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