Watch Out: Barbarians At The Gate For Conn's (CONN)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Conn's ( CONN) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Conn's as such a stock due to the following factors:

  • CONN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $40.1 million.
  • CONN has traded 588,728 shares today.
  • CONN traded in a range 224.5% of the normal price range with a price range of $2.25.
  • CONN traded above its daily resistance level (quality: 16 days, meaning that the stock is crossing a resistance level set by the last 16 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on CONN:

Conn's, Inc. operates as a specialty retailer of durable consumer goods and related services in Texas, Arizona, Louisiana, Oklahoma, and New Mexico, the United States. CONN has a PE ratio of 10.5. Currently there are 3 analysts that rate Conn's a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Conn's has been 1.3 million shares per day over the past 30 days. Conn's has a market cap of $1.0 billion and is part of the services sector and retail industry. The stock has a beta of 0.26 and a short float of 42.2% with 8.95 days to cover. Shares are down 63.4% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Conn's as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth greatly exceeded the industry average of 0.1%. Since the same quarter one year prior, revenues rose by 30.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for CONN'S INC is rather high; currently it is at 52.87%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 5.00% trails the industry average.
  • CONN's debt-to-equity ratio of 0.95 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 4.02 is very high and demonstrates very strong liquidity.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, CONN'S INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

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