Is This Stock Better Than Best Buy?

Best Buy's (NYS: BBY) difficulties are well known; one glance at its two-year stock chart indicates the disintegration of the electronics retailer's business strength since better days. So why have shares of a tiny rival surged beyond all reasonable levels?

Conn's (NAS: CONN) shares have increased by a whacked-out 325% in the last year. Given the difficulties facing stronger companies like Best Buy, it's difficult to come up with a good reason for that kind of bullishness.

Granted, some of Conn's near-term sales figures have improved. For example, early in August it reported that its second-quarter net sales increased by 12.9% to $171.7 million, and same-store sales surged 21.5%.

Still, bear in mind that Conn's hasn't reported an annual revenue increase since the year ended January 2009, and it hasn't managed to report a yearly profit since the year ended January 2010.

Obviously investors believe that this retailer, which sells electronics, appliances, furniture and mattresses, and home office accoutrements, has a lot of growth ahead of it. Granted, it is small compared to mightier rivals, with only 65 total locations in Texas, Louisiana, and Oklahoma.

By comparison, Best Buy and RadioShack (NYS: RSH) have blanketed the U.S. consumer landscape with thousands of stores, and even another small rival, hhgregg (NYS: HGG) , operates about 200 stores in 17 states.

However, is there really room for another electronics retailer to grow in the current market conditions? The online electronics market is a major stumbling block to Best Buy and its bricks-and-mortar ilk; (NAS: AMZN) is obviously the formidable force to contend with in the online realm. So what on earth is convincing investors to snap up Conn's shares at these prices?

Plus, here's some more risk. Conn's provides what it dubs "flexible credit options" for its customers, meaning some in-house financing as well as third-party financing and rent-to-own payment plans are built into its business plan. In the last three years, Conn's financed on average 61% of its sales under its in-house financing program.

That may be one of Conn's key differentiators, but that really might not be such a good thing. Given current uncertain economic times, that strategy could be a boon until beleaguered American consumers are no longer able to pay.

Personally, I wouldn't touch Conn's shares with a 10-foot pole right now; it's scheduled to report its most recent quarter tomorrow, and I'm mighty curious as to its tidings and how investors will react. Do you think Conn's is a good stock idea right now? Add your thoughts in the comments box below, or if you're more interested in hyper-rival, check out our new premium research report on the e-commerce behemoth by clicking here. It's must know information for not only Amazon investors, but for anyone investing in companies that compete with the online giant, and comes with a full year of guidance and updates.

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Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Best Buy, RadioShack, and Motley Fool newsletter services have recommended buying shares of and hhgregg. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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