At a time when many fledgling retailers are being dismissed as dinosaurs in training, Barnes & Noble (NYSE: BKS) can't seem to keep opportunistic admirers away.

The bookselling superstore chain is trading sharply higher today after Jana Partners revealed that it has acquired a 14% stake in the seemingly troubled retailer. Liberty Media (Nasdaq: LMCA) was considering an outright buyout last year before also settling for a sizable stake in the company.

So what's the attraction drawing a hedge fund like Jana Partners closer to a company that many have left for dead?

When Borders liquidated its operations last summer, it wasn't an event that Barnes & Noble was cheering. The move may have eliminated its biggest real-world competitor, but it also was a sign that a lot of consumers were opting for digital delivery of their books and magazines instead of consuming them in leafy form. (Nasdaq: AMZN) -- which rarely details the success of its Kindle e-reader or new Kindle Fire tablet -- even announced that it was selling more than a million Kindles across all categories on a weekly basis during last year's holiday shopping season.

Some will argue that the reason that Barnes & Noble didn't beat Borders to the lit-savvy grave is that it, too, has a thriving tablet in Nook. However, there are two big problems with Nook in all of its incarnations.

  • Barnes & Noble is a distant second to Amazon in e-readers.
  • The more successful it is in selling e-readers, the more it will suffer at the store level as its most loyal customers go digital.

It's always possible that both Jana and Liberty see the value of the Nook platform exceeding what even a shuttered Barnes & Noble would be worth.

They better hope so. Analysts don't see Barnes & Noble turning a profit until fiscal 2014 at the earliest, and these aren't pessimists. Wall Street has actually overestimated the chain's earnings power every quarter, so it seems as if even the pros haven't realized how bad the company's bottom line is holding up.

Jana Partners is a hedge fund manager that favors an activist angle, so it knows what it's doing in diving into problematic companies. However, given the real possibility that Barnes & Noble is on an irreversible downward spiral, it may have bitten off more than it could chew this time.

Mobile madness
The popularity of e-readers, smartphones, and tablets opens the door for some surprising Wall Street beneficiaries. Read up on three hidden winners in a free report. If you wait for the report to show up on your Nook you may be too late to the party so check it out now.