Furniture maker and Motley Fool Hidden Gems selection Hooker Furniture (NASDAQ:HOFT) reported a blip in its quarterly profits on Tuesday, and its stock paid the price in Wednesday trading. A few short hours were all it took to vaporize 8% of Hooker's market cap. Yet the company didn't suffer a reduction in sales. It didn't lose money. On the contrary, year on year, Hooker increased sales by nearly 13% and remains firmly profitable. The problem, in Wall Street's myopic opinion, was that it became slightly less profitable this quarter than it was in Q3 2003. Specifically, net earnings dropped from $0.31 to $0.27. Throw out a $0.10 per share restructuring charge related to plant closings, however, and earnings were up.

Sometimes it's depressing how shortsighted the market can be. But on the other hand, when a stock takes an irrational hit to its price, that can provide a good entry point for Fools who keep the long-term picture firmly in view. So let's take a look at the company's past nine months' results: To date, Hooker has clocked $254 million in sales for 2004, an 11% increase over its numbers for the first three quarters of 2003. On the earnings front, Hooker has already racked up $1.09 in profits for the year. That's a 12% increase over the first three quarters of 2003, so profit growth is outpacing sales growth. (This is a good thing.) Given that Hooker expects to see 10%-15% year-on-year sales growth in Q4, and earned $0.31 in Q4 of 2003, it seems likely the company can post profits at least in the mid-$0.30s come December for a total annual profit of $1.45 or thereabouts. That would fall well short of analyst estimates of $1.75 but would nonetheless leave Hooker with a pretty reasonable P/E ratio of about 17.

There are only two other things in Hooker's earnings report that I see that could have spooked the Street. First, cash from operations dried up from last year's torrent of $22.5 million to this year's trickle of just $1 million. Subtract from that last number the $2.6 million Hooker has spent on capital expenditures so far this year, and the company now looks to have negative free cash flow. Second, inventories at Hooker ballooned nearly 70%, which could be bad. But in its earnings release, Hooker did not break down the inventory number to explain whether it reflects finished goods piling up, unsold, in its warehouses or lumber, nails, and upholstery being collected to support a continued surge in sales in coming quarters. Hooker did, however, point out that it has a large backlog of orders, and characterized its inventory position as "solid." That suggests that the inventory build-up is probably not a problem. This is, however, something that prudent Fools should look into when the company files its 10-Q with the SEC.

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Fool contributor Rich Smith owns no interest in Hooker Furniture.