Taking Stock: Hhgregg

Dear Mr. Berko:
My new broker recently recommended 300 shares of hhgregg as a long-term investment, believing the stock can move up $30 in the next two years. What do you think? Also, we both read your article on value added tax and how it works. Well, it won’t happen because people are tired of being taxed and taxed. Are there any other tax sources to raise new revenues that Congress can consider?
B.J., Ann Arbor, Mich.

Dear B.J.:
These are difficult times and difficult circumstances. And difficult times and circumstances demand difficult solutions that are not popular politically. 

Perhaps we could consider taxing our churches! Greece, on the cusp of a financial meltdown, is imposing taxes on the Greek Orthodox Church. The church, one of the country’s largest owners of real estate, will now pay taxes on 20 percent of the income from its real estate holdings. Cash bequests will face a levy of 10 percent, and property bequests will be subject to a 5 percent tax. The Greek government knows these taxes would generate a significant amount of money. 

An Episcopal bishop in California whom I’ve known for 26 years believes if all church properties in California were taxed at the current property rate tax, California would enjoy a surplus. 

On one hand, taxing church property would be like opening a box of spiders. Tens of millions of Americans would go ballistic. On the other hand, and not surprisingly, tens of millions of Americans would embrace a church tax with the enthusiasm of sports fans watching the Super Bowl. 

Of course, there are other alternatives: raising states’ property taxes, income taxes, sales taxes, licensing fees, permits, etc. And there’s also another alternative, which would require each state to balance its budget. 

Hhgregg (HGG-$20) is the little man’s Best Buy (BBY-$33.23) with 130 locations in Alabama, Florida, Mississippi, Ohio, Georgia, Indiana, Tennessee, Virginia and both Carolinas. HGG retails all kinds of frivolous video games, techno toys, racks of digital cameras, camcorders, CD players, MP3 players, cell phones and notebook devices that are used to supplement our diminishing brain functions. HGG also retails audio and home theatre systems, dishwashers, dryers, refrigerators, air conditioners, freezers and cooking ranges. HGG’s own geek squad also repairs, installs and maintains the big-ticket items it sells. And HGG’s prices are compellingly attractive.

HGG came public in 2007 at $15 with revenues of $1.06 billion, earnings of $0.81 and a book value of $1.36. In late 2008, when investors got a clear glimpse of economic Armageddon, HGG shares plummeted to $3.75 – though revenues increased, earnings fell to $0.67 a share. 

In 2009 revenues grew to $1.6 billion, earnings darted to $1.03 and book value hit $7.21 a share. And in late 2009, HGG ran up to $31 on prospects of a grand 2010. 

And a grand 2010 it looks to be. Revenues should grow by 47 percent to $2.3 billion, and earnings should increase from $1.03 to $1.46 in 2010. Meanwhile, with 250 planned stores on the horizon, 2011 looks pretty darn good, and so do the outer years. 

Credit Suisse and Reuters give HGG their highest rating, while the technical analysis of Market Edge recommends HGG be avoided, suggesting that its chart pattern presages a bearish trend. 

And your broker deserves a gold star because HGG looks like an above-average long-term investment, if the economy doesn’t double dip.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.
© 2010 Creators Syndicate Inc.