Books-A-Million's Million

Who says bigger is always better? With only 202 stores, Books-A-Million (NYSE: BAMM  ) is running a distant third behind industry leaders Borders (NYSE: BGP  ) and Barnes & Noble (NYSE: BKS  ) , which operate about 1,200 and 850 stores, respectively. However, as Tom Gardner could tell you, sometimes good valuations are wrapped up in small market caps.

Second-quarter numbers released after the bell yesterday were rather mundane. Books-A-Million profited, well, a million. Earnings of $0.06 were two cents below last year but two cents ahead of the lone analyst's forecast. With comps remaining flat, sales managed to crawl fractionally higher to $114.1 million. Keep in mind, though, last year's June release of Scholastic's (Nasdaq: SCHL  ) phenomenally popularHarry Potter and the Order of the Phoenix made for difficult comparisons, especially on the top line.

Year to date, earnings have surged to $0.13 from $0.02 on revenues that climbed 5.2% to $222.6 million. After a 7.1% spike last quarter, same-store sales are higher by 3.3%.

Both Borders and Books-A-Million have just raised full-year guidance, but Books-A-Million's 35% growth outlook is twice as optimistic as Borders' 13% to 16%.

With a market cap of only $112 million, Books-A-Million is trading at less than one-fourth of the $470 million that has been run through the company's cash registers over the past 12 months. The firm's price-to-sales ratio of 0.23 is well below that of its traditional brick-and-mortar rivals and a league apart from the 2.6 at Amazon.com (Nasdaq: AMZN  ) .

By any other measure, Books-A-Million looks equally cheap. The price-to-book ratio of 0.82 stacks up well next to Barnes & Noble's 1.8 and Borders' 1.55, the PEG ratio of 0.88 is beneath the industry average, and with $39 million in free cash flow, the company's EV/FCF ratio is less than 3.5. This is after the stock has doubled over the past year.

Of course, this is not to imply that Books-A-Million is spotless -- for one thing the company carries a hefty debt load. However, with strong growth prospects, enticing valuations, and a brand-new dividend payment, investors who choose to read more than the firm's cover may find the story inside to their liking.

Stumbled across a great novel lately that you'd like to share? Discuss it with other Fools in the Books and Writing board.

Fool contributor Nathan Slaughter likes to alternate between fiction and nonfiction reading. He owns none of the companies mentioned.