Despite the fact that the coming of fall should be a great time for arts-and-crafts type stores, Michaels Stores (NYSE:MIK) shares got a beating today after its third-quarter earnings and some Wall Street analysts' downgrades of the stock.

For the quarter ended Oct. 30, Michaels reported net income that was up 11% at $42.5 million, or $0.31 per share. Total sales increased 6% to $799.9 million, but here's one warning signal that investors take into consideration: Same-store sales increased a measly 1% in the quarter, and one might have thought that the weeks leading up to the Halloween holiday would have helped a retailer such as Michaels make a better showing than that.

Meanwhile, Michaels' same-store sales may falter a bit in November, according to the press release. Although the company forecast its same-store sales will increase 2% to 3%, November same-store sales are down 2% to 4% -- hmmm. This slack seems a little odd for an arts-and-crafts store in the beginning of the fall holiday season, since these retailers usually attract plenty of decorators. It makes one wonder how December will really pan out.

Are big-box competitors such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) wooing Michaels' customers? Or, perhaps, smaller, more specialized competitors, such as A.C. Moore Arts and Crafts (NASDAQ:ACMR) and Pearl, have been giving it a run for its money in ribbons, outdoor lighting, ornaments, and other holiday swag. (In the company's conference call, officials cited hurricanes, reductions in its advertising program, and clearance sales with less merchandise.)

On the other hand, as we've seen before, one of Michaels' claims to fame is its cash cushion. The company's cash increased 63% over this time last year. In the first nine months of the year, Michaels generated $20 million in free cash flow. Last year at this time, Michaels' cash flow generation was in the negative range.

Judging whether it's an opportunity to buy shares in the arts-and-crafts purveyor bears some consideration. Even though the stock was recently down 8%, it's still trading at a P/E of 20. That's pretty high, especially given suspicion that growth may be stalling. Also, buying into Michaels right now is making a bet that the drop in same-store sales was a fluke and not a signal of a coming trend.

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Alyce Lomax does not own shares of any of the companies mentioned.