Could This Crafty Stock Make You Money?

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)

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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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