Could This Crafty Stock Make You Money?

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Given the economic "new normal," more and more people might become crafty "makers" instead of the voracious "consumers" they were before the economic crisis. Jo-Ann Stores (NYSE: JAS  ) could be a beneficiary of such a change of heart.

Jo-Ann Stores, which was founded in 1943, provides fabrics and crafts supplies. It's a huge segment. According to the Craft & Hobby Association, 56% of American households participated in such activities in 2009, and the market opportunity represents $30 billion in annual sales. Jo-Ann attempts to drive additional sales and lure loyal repeat customers through initiatives like craft classes, as well as having a workforce that is strong on crafting enthusiasts.

Jo-Ann Stores competes with several specialized retail names, like A.C. Moore (Nasdaq: ACMR  ) , Michaels, Hobby Lobby, and Hancock Fabrics, as well as large mass-merchant retailers. One event that's been helpful to Jo-Ann Stores and its ilk is that discount retail giant Wal-Mart (NYSE: WMT  ) has sheared fabric departments from some of its stores.

Jo-Ann Stores has been solidly profitable and increasing sales for several years. In the fiscal year ended January 2010, its sales increased 4.7% to $1.99 billion and earnings hit $2.51 per share. It also has a stellar balance sheet, with $126.1 million in cash, and no debt. So, its market cap of $1.2 billion is more than 10% cash.

Conversely, publicly traded rival A.C. Moore has struggled with dwindling sales and profitability over recent years. In the fiscal year ended January 2010, its sales dropped 12.3%, to $468.9 million and it posted a loss of $1.15 per share. Its market cap is currently just $60 million.

Granted, A.C. Moore is a smaller company overall, with around 135 stores focusing on the East Coast, compared to Jo-Ann Stores' national presence with 746 stores in 48 states. Still, the comparison shows Jo-Ann Stores is a stronger stock, and with a PEG ratio of 0.8, it looks like a bargain, too.

With so many Americans worried about the economy and their own livelihoods, a backlash against rampant bubble-driven consumerism could make life tough for many retailers like Bed Bath & Beyond (Nasdaq: BBBY  ) , bebe (Nasdaq: BEBE  ) , and Coldwater Creek (Nasdaq: CWTR  ) , all of which face tons of competition on a good day. On the other hand, Jo-Ann Stores looks likely to benefit from a recession-resistant drive for fun one makes for oneself, as Americans adjust to the "new normal."

Wal-Mart is a Motley Fool Inside Value pick. Bed Bath & Beyond is a Motley Fool Stock Advisor choice. The Fool owns shares of Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 24, 2010, at 4:58 PM, fennecfoxen wrote:

    Blargh. BBBY? Last I checked, they're doing just fine, actually. If anything, they have too much extra cash sitting around and need to find a good way to dispose of it. If a "backlash against bubble-driven consumerism" hasn't killed them yet, I don't think it's going to at this point... unless you want to bet on another recession.

  • Report this Comment On September 24, 2010, at 8:26 PM, mustang555 wrote:

    I think JAS is a good stock to own for the next year or two. In bad economic times hobbies and crafting seem to pick up steam, as they are usually inexpensive and rewarding.

  • Report this Comment On September 27, 2010, at 6:50 AM, brizzlekizzle wrote:

    This article should have been written a while ago. In Jan 2008 it was selling for less then $10 a share. I, being tired and lazy, gave it a quick look and decided it would continue to fall. Little did I know it had already fallen and the current price had overcompensated the current state of JAS. Now it sells for 44 ish I think. Well I am a value investor, I think you REALLY should look at the value of JAS and ask how much its worth before you ask if it could make you money.

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