Fabric and craft specialty retailer Jo-Ann Stores (NYSE:JAS) recently announced third-quarter earnings of $0.32 per share and reiterated its fourth-quarter earnings outlook, holding it steady at the $1.30-to-$1.40 range. With the company reporting its earnings and revenues exactly in line with analysts' estimates, the market responded in appropriate fashion -- the share price remained unchanged.

Two areas of concern are same-store sales, down 0.9% for the quarter despite an increase in the average ticket of 4%, and profits, down 39% from previous-year levels. But the company's management offered good explanations for both of these developments -- and none of them had any thing to do with hurricanes. Last year's earnings were boosted by a special 60th-year anniversary promotion in August 2003, and in this year's quarter there was lower customer traffic due to a shift in the company's promotional calendar.

I think the real story with Jo-Ann Stores is the company's fair valuation. While the price-to-sales ratio of 0.33 may look cheap, it goes hand in hand with a low-single-digit profit margin and a stock that trades at 18.5 times trailing free cash flow. A comparison of forward P/E with the forecast five-year growth rate -- they currently appear to be equal -- paints a similar picture. Finally, the company's balance sheet shows $200 million in debt sitting next to just $34 million in cash. However, the debt load does vary significantly throughout the year and is at its annual high point: While this level of liability isn't ideal, it's not crushing either.

While the company may provide some spark for investors with its new 35,000-square-foot superstore prototype that appears to be doing well, I would wait until market volatility gives investors a larger discount or until the superstore concept offers more proof of the possibility to boost margins and sales. With related outfits like Michaels Stores (NYSE:MIK), A.C. Moore Arts & Crafts (NASDAQ:ACMR), and Hancock Fabrics (NYSE:HFK) trading at similar valuations but sporting higher projected growth rates, investors can probably find better risk-to-reward ratios.

Fool contributor Marko Djuranovic does not own shares in any companies mentioned in this article.