After bottoming out at $5 in October, Franklin Covey's (NASDAQ:FC) stock price has ascended to about $8. Despite a history of losses, the company was able to return to profitability in 2006. Those are encouraging signs, but management must still find ways to pump up its lagging revenue growth.

Franklin Covey develops books, courses, and videos to help individuals and companies with leadership and time management. It also offers digital products for systems and handhelds from Microsoft (NASDAQ:MSFT), Palm (NASDAQ:PALM), and Hewlett-Packard (NYSE:HPQ).

Fiscal second-quarter sales fell 2% to $76.8 million, largely because of lackluster product sales. Over the past year, the company closed 10 stores, leaving a total of 87. Those stories posted a 10% decrease in comparable same-store sales, accompanying a 13% decline in Internet and catalog channel sales.

In a lone bright spot, Franklin Covey's training and consulting services division grew sales 15%, to $4.1 million. Management thinks the momentum will continue throughout 2007.

While gross margin remained steady at roughly 61%, the company saw its net income fall by nearly half, to $4.7 million, as it spent more on additional salespeople, marketing, and curriculum development.

Trading at seven times earnings, Franklin Covey certainly looks cheap. Yet it's not clear how the company will improve its deteriorating product sales, nor curb its rising expenses. Unless it comes up with some highly effective solutions, its stock price may continue to underperform.

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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 2,719 out of 25,386 in CAPS.