CONN’S, Inc. (CONN), Best Buy Co., Inc. (BBY): Can This Retailer Rise Further?

With a forward P/E of 16, it seems like the stock has more room to run if it can exceed earnings expectations. Best Buy Co., Inc. (NYSE:BBY) trades at a 12.5 forward P/E, but it does not have the momentum that CONN’S, Inc. (NASDAQ:CONN) has, so the premium is more than justified.

Conn’s puts great emphasis on selling on credit, relying on internal options. Conn’s credit generated 74% of sales, while General Electric Company (NYSE:GE) Capital accounted for 11.8% of sales. All in all, 89.6% of sales were executed on credit. Given the current state of economy, such aggressive reliance on credit can help spur additional growth.

Analysts’ mean price target for Conn’s is $62.89, an upside of 14% from the current price. The target is reachable. However, as the stock moves higher, the risk of a significant pullback due to profit taking increases as well. Analysts are less optimistic about Best Buy Co., Inc. (NYSE:BBY) and RadioShack Corporation (NYSE:RSH), calling for 7% downside and 18% downside, respectively.

Bottom line

Conn’s can rise even more as the company reaps the benefits of its momentum. In the meantime, investors must be careful not to get caught in a pullback, which might ultimately occur as the stock has gained a lot. Best Buy Co., Inc. (NYSE:BBY) is more likely to take a break at current levels after the initial optimism about company’s initiatives.

Investors would probably like to see proof that the initiatives have turned into money when the company would report during this earnings season. As for RadioShack Corporation (NYSE:RSH), the company is losing money and does not seem to find a way to turn the tables. I see big downside risks in this stock.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool owns shares of RadioShack. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Can This Retailer Rise Further? originally appeared on Fool.com is written by Vladimir Zernov.

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