Conn's versus Best Buy

Conn's is a specialty  retailer of home appliances and consumer  electronics with a very long history. Its total revenue has grown by 200% at a compounded annual rate of 17% from $234.5m in fiscal 1999 to $702.4m in fiscal 2006 and its net income has grown by 360% (24.7%/year) during the same period. Same store sales growth during this period has averaged 9.2% per year. It is currently trading with a PE ratio about 14.8 and a forward PE ratio about 12.2. This company can grow itself by both opening new stores and selling more at existing stores. It currently has only 58 retail stores located in Texas and Lousiana. Therefore it has plenty of room for further expansion and is still in the very early stage of its long term growth. I recommend you to buy this growh stock in your non-retirement account and you will get a compouned return about 15-20% annually for a very long long time even its current PE is not expanding in the future. What is this company's strength in a highly competitive retail market? According to its 10-K, it is outstanding in terms of customer satisfacting rate. Its flexible financing alternatives and same day delivery capabilities also help this company to succeed in this market. Its balance sheet is very strong. This company has very little debt. Its valuation is much cheaper comparing with its major rival Best Buy (BBY). CONN's forward PE ratio is only 12 against BBY's 17 with approximately the same growth rate.

Operating margin (Conn's vs Best Buy)

	Conn's	Best Buy
2002	9.5%	5.1%
2003	8.8%	4.8%
2004	8.4%	5.3%
2005	8.6%	5.3%
2006	9.1%	5.3%

(Operating margin comment: Conn's is much better than Best Buy's)

Gross margin (Conn's vs Best Buy)

	Conn's	Best Buy
2002	38.4%	20.0%
2003	37.9%	23.6%
2004	36.4%	23.9%
2005	36.6%	23.7%
2006	35.5%	25.0%

(Gross margin comment: Conn's is much better than Best Buy's. But the bad news is, Conn's gross margin is declining slowly and the opposite is true for Best Buy)

SG&A ratio(Conn's vs Best Buy)

	Conn's	Best Buy
2002	28.3%	14.9%
2003	28.2%	18.8%
2004	27.1%	18.6%
2005	27.0%	18.4%
2006	25.9%	19.7%

(SG&A ratio comment: Conn's SG&A ratio is much bigger than Best Buy's. That's bad for Conn's. I think economic scale plays an important role here because Best Buy's revenue is obviously much bigger than Conn's. The good news is that that ratio is becoming smaller and smaller for Conn's and the opposite is true for Best Buy.)

Same-store growth rate(Conn's vs Best Buy)

	Conn's	Best Buy
2002	15.6%	4.9%
2003	1.3%	4.3%
2004	2.6%	7.1%
2005	3.6%	2.4%
2006	16.9%	1.9%

(Comment: this number is very volatile for both companies. I looked at this number before 2002 for Conn's. The same-score growth rate is 13.6% in year 1999, 8.9% in year 2000, 10.3% in year 2001 for Conn's. Therefore this number was an anomaly from 2003 to 2005.)

Conn's depreciation vs capital expense (thousand)

2003  5,411   15,070

2004  6,654    9,401

2005  8,777  19,619

2006 11,271 18,490

(Comment: unfortunately this number is not good for Conn's. I guess that Conn's needs to spend extra to open new stores.)

Conn's inventory turnover rate (inventory / cost of goods sold)

2002 15.1%

2003 16.7%

2004 17.1%

2005 17.6%

2006 16.5%

(Comment: this is number is quite stable and  indicates there is no red flag here)