Cramer’s Timely Trade: hhgregg

Investors should buy hhgregg’s secondary offering this week, Cramer said Monday, but only if they can get the print price or less. Paying more than that could turn this trade into a loss.

A caller during last Thursday’s Lightning Round stumped Cramer with hhgregg , but he did some research and decided the secondary offers real opportunity. While this consumer-electronics retailer may be a bit too small and speculative at $17, the stock might work below that number.

Hhgregg will sell 4.45 million shares, including 1 million to private-equity firm Freeman Spogli, which already holds 38% of the shares outstanding. It’s usually a good sign when insiders are buying an offering, Cramer said, and not using the chance to unload their holdings. So he thinks this is a positive event, though again, only if investors can get HGG for the offering price – and no more.

What is there to like about hhgregg? The company has big plans to grow its 111 stores throughout the Midwest and Southeast to 400 outlets nationwide. And it will use the secondary to fund the move, rather than issuing debt. That’s just the kind of retail expansion story that Cramer likes.

To hit its target, Hhgregg is playing to its advantage both the weak commercial real estate market and the stabilizing residential one. The company will grow and save money by moving into empty retail locations instead of spending to build new stores. And it will sell washing machines, refrigerators and other home appliances to the rising number of new homeowners, who now feel confident enough to enter a safer-looking housing market.

Cramer also thinks that hhgregg’s superior customer service will help to win over new shoppers. One way the company has been trying to lure people in is by accepting Circuit City gift cards and warranties. It’s a good idea considering that 12% of CC’s stores are within five miles of an hhgregg, which carries about 60% of its former competitor’s merchandise. Who said Best Buy was the only beneficiary of Circuit City’s collapse?

HGG trades at 13.9 times next year’s earnings estimates despite its 17.6% long-term growth rate, and the secondary offering gives investors the chance to buy this stock at an even lower multiple. Either way, growth-loving money managers would easily pay 18 times earnings for hhgregg.

Growth, the housing bottom, a rising multiple – there are plenty of reasons to buy hhgregg, Cramer said. Just don’t pay up for it.

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