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8:22 am
March 26, 2010
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Jae Jun
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Very true. Even in the article I wrote, price was way below NCAV. Not by a few percentage points but by 20% or so. Should have been a big enough MOS.
All in hindsight of course.
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4:50 pm
March 25, 2010
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eldinril
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Conn's is another stock that I did not buy due to a lack of cash, but now wish that I had. One reason that I was not quite as negative on this business as other people was for a couple of reasons. If you stripped out all of the consumer receivables from their credit business, the stock was trading below 2/3 of tangible book at its lows. Furthermore, it does have a rather impressive earnings record over the last ten years. I think it was certainly reasonable to be apprehensive about this particular company. It was not until I decided to see how things looked even if the consumer credit receivables proved to be totally worthless that I found value. Anyway… 20/20 hindsight.
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8:44 pm
March 2, 2010
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Jae Jun
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Here is a very good analysis of CONN of why it is trading at the level it is.
To sum it up, the margin of safety is very grey.
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8:46 pm
February 17, 2010
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Jae Jun
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As an investment, I wouldn't bother if the value lied in having to dig further into the receivables. Even if financing is internal, it doesn't change the fact that they are not receiving cash from their sales. Days in receivables ratios still counts regardless of the type of financing.
I'm just guessing with the next comment but CONN would probably have offered 0% interest as well.
My view is that a retail operation should be lean and show improvements in operations which is its core strength rather than mess around with financing.
Reminds me of why Lampert sold Sears credit card business. They shouldn't be mixed together.
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11:18 am
February 17, 2010
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RKresper
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Jae,
One thing that I noticed is missing from your analysis of CONN's receivables is the fact that they provide in-house financing of their receivables, some of which they retain on their balance sheet, and some of which they sell to a special purpose entity, which securitizes them. Given the massive change in attitudes towards securitization, is it any surprise that CONN is able to offload less of its receivables to its QSPE for securitization? According to the notes in the most recent 10-Q, that's exactly what's happening. The QSPE is paying down debt and purchasing a smaller quantity of receivables from CONN, presumably because the market for securitized assets is weaker. As a consequence, CONN has to draw on its credit to fund receivables, where it would have in the past been able to rely on proceeds from the sale of those receivables to its QPSE. In my opinion, a big part of analyzing CONN is understanding the securitization process, and being able to ascertain the overall health of CONN's credit – essentially, assessing the seriousness of the disclaimers in CONN's 10-Q that this increase in reliance on credit to fund receivables, and the retaining of those receivables on CONN's balance sheet, raises the risk that they won't be able to satisfy their covenants, and have access to the credit necessary to support the growth of their receivables and meet their operational cash flows needs.
Because of the way CONN's customers finance their purchases, and the changes in the credit markets over the last two years, I don't think that this is a straight-forward situation, where you can view the receivables on the balance sheet ballooning as a direct indication of management's ability to run its business. In this case you really have to dig into the notes to understand what's driving these changes.
Thoughts?
-RKresper
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2:41 am
February 10, 2010
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Jae Jun
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Like I said before, keep an eye on receivables and inventory. It is a clear indicator of how the next quarter will play out.
Until they get a handle on the basics, the company will continue to fall and will be a value trap.
A very good application of what I learnt in Quality of Earnings. It is a must read for any investor.
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4:00 pm
February 9, 2010
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dmop12
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It looks like Conns could be in big trouble. Considering the recent news, what are you guys' thoughts on this company? Is this company doomed? What are your long term thoughts on CONN? If the company makes it through the next couple quarters is this investment still to much of a risk? It looks as though it is trading close to its NN but considering the recent news, as a long term value investor….move on and find another investment, or keep it on the radar?
Thanks for the input
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1:05 pm
February 9, 2010
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jalleninvest
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To thrive as a value investor, Christopher H. Browne once said, you have to "risk being called a
dummy from time to time."
This is what came to mind as I read the news of CONN's quarterly results this morning. Whewwww!
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6:58 pm
February 5, 2010
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jalleninvest
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I've been looking at CONN for some time. It has been at a "cigar butt" valuation, little more than half NNCA.
I try to get comfortable even with these opportunities, but as one very successful value investor says, "You are buying CHEAP stocks, not great ones." Still, every transaction involves a buyer and a seller, and one of them is going to be wrong!
I have looked into situations over the years, run the numbers, read the reports, and known immediately that "This will be a great one!" I'm not quite there yet on this.
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3:59 pm
February 5, 2010
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Jae Jun
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Valuation looks very cheap. Conservatively, it looks like CONN is worth around $15 but they're increase in accounts payable and accounts receivables is worrisome. Looks like it could lead to more trouble, or the trouble has already surfaced.
For retailers, I would prefer to wait until the inventory and accounts receivables show improvement, otherwise you could be trying to catch a falling knife. Good one to keep an eye on and learn more about.
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4:08 pm
February 3, 2010
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dmop12
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By the way, I was using the OSV 5 year spreadsheet.
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4:00 pm
February 3, 2010
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dmop12
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I'm not sure if you guys have heard of (Conn) but I would like to get your opinion on them. They are in the retail business selling home appliances refrigerators, freezers, washers, etc. They currently have 75 stores located in Texas, Louisiana, and Oklahoma.
Current price 5.49
Here are my valuations:
EPV 12.73 Graham Price 20.18 DCF Price 23.42
(Collecting 75% on A/R,
50% inv. pp&e, and N/R) D/Rate 15%
D15/Rate 15% Growth Rate 8% Growth Rate 8%
MOS 57% MOS 73% MOS 77%
I believe the stock should be priced somewhere between 15 to 20. They had a poor performance last year but were still able to maintain positive owner earnings. They also have about 160 mill. in cash and cash equivalents.
Cons: 1) Recently setteled a lawsuit with State of Texas
2) Declining economic conditions could trigger default provision of their credit facilities
3) Lower profit margins do to increasing competition
4) Possible shift in Business environment
5) Finance large portion of their sales
Would like to hear your thoughts Jay and anyone else.
Thanks
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