The electronics retail business is a tough one. If you don’t believe me, go ask Best Buy (BBY). They’ve been struggling to become more than Amazon’s show room for quite some time. With the ease of access to products via the internet, investing tons of money in a brick and mortar location is becoming less and less profitable. You could look back and find plenty of examples of these types of locations going under and ultimately going broke.
That’s why I can’t help but think of today’s Bear of the Day, hhgregg (HGG), as the next Circuit City. Remember that old electronics store that lost out to Best Buy and went under? I’ve set foot in an hhgregg location that was in the same building that used to house Circuit City. And there they were, selling electronics just like Circuit City did before going under.
I actually enjoyed my shopping experience at HGG. The people working there were very friendly and helped me pick out a computer for my Mom’s Christmas present. I got a great deal and thought to myself, “How can this place stay in business selling things this cheap?”
That’s exactly what hhgregg does. They are a specialty retailer of premium video products, appliances, audio products, computers and accessories with seventy nine stores in Alabama, Georgia, Indiana, Kentucky, North Carolina, Ohio, South Carolina and Tennessee. If you ever go to one I’m sure you’ll see it the same way that I did, like a Circuit City.
Analysts are equally unimpressed with this Zacks Rank #5 (Strong Sell). Over the last 30 days, ten analysts have lowered their earnings estimates for the current quarter, next quarter, and the current year. Next year isn’t looking much better as eight analysts lowered their bar. The revisions have pushed the consensus estimate for the current year down from a 12 cent gain to a 31 cent loss per share. Next year’s numbers have fallen from a 12 cent gain to a 21 cent loss.
Usually when looking for a company to invest your hard earned dollars in, you want to see a company that has earnings growth or at the very least stability. In the case of HGG, you get neither. You’re getting a company with shrinking profits in an industry that is shrinking. In fact, this industry ranks in the Bottom 6% of our Zacks Industry Rank.
If that wasn’t enough to warn you about this stock, the chart will be the icing on the cake. After a stellar run for three-quarters of 2013 took the stock from $7 all the way to $12 the stock began to fall apart. In October 2013 HGG broke below its 25 day moving average shifted by 5 days where it would remain until the stock shed half its value, finally popping back above in late January 2014. This year has been no cakewalk either. HGG has run out of gas, gapping down on earnings once again and now trades all the way down at $7.68.