Is Conn's Stock's Risk Worth the Reward for Investors?

Conn's Inc (NASDAQ:CONN) is a specialty retailer currently operating over 150 retail locations in the United States. On Dec. 28, Conn’s senior leadership team announced that the retailer will host a virtual Investor Day on Jan. 20. As part of the event, Conn’s will host a webcast followed by a live question and answer session for shareholders.

Conn’s stock has almost doubled in price during 2021, up 96% year-to-date. The equity has experienced a choppy pullback from its three-year high of $31.48, touched on June 4, but the 320-day moving average helped capture some of this negative price action, launching it back up the charts in December. 

Moreover, Conn’s stock has an incredible valuation. CONN trades at price-earnings ratio of 5.48 and a price-sales ratio of 0.38, which are both very attractive values. However, Conn’s fundamentals offer very little security. The company has $856.4 million in total debt and only $10.6 million in cash on its balance sheet. Conn's reported a slight decline in revenues and a $17 million decrease in net income for fiscal 2020.

Nonetheless, Conn's has recovered fairly well since then. The company has grown its trailing 12-month revenues 12% and increased its trailing 12-month net income by almost $130 million. Although its fundamentals could cause problems long-term, CONN remains undervalued by most metrics, potentially offering an opportunity for short-term investors in 2022.

With all this said, now might be a good opportunity to speculate on CONN with options. The security sports a Schaeffer's Volatility Index (SVI) of 58% which sits in the relatively low volatility 16th percentile of its annual range. In other words, options traders' volatility expectations aren't that high at the moment.