We like to write about Hooker Furniture (NASDAQ:HOFT) here at the Fool, and not just because it's so easy to concoct a naughty headline.

It's because this Motley Fool Hidden Gems recommendation provides a prime example of the thrill of victory and the agony of defeat. Though the scorecard shows a 9.7% gain since the company was first highlighted in August 2003, that's a 13% deficit to the S&P's returns over the same period.

The underlying reason for the recent malaise is its sales growth, which is slipping from the double digits toward the dreaded kind -- the percentage changes preceded by a negative sign. My colleague Rich Duprey pointed it out when he reviewed earnings back in March, when overall sales rose just 2.9%. A few weeks later, Hooker predicted a 5%-7% decline in year-over-year sales for the upcoming quarter.

One of the more frightening symptoms of Hooker's current situation is an inventory glut that's afflicting some of the competition as well. In fact, some of us have been looking cross-eyed at inventories for a while now. I was suspicious of that situation back in January, when I noted that despite some impressive operating efficiencies, the firm was changing hands for a pretty rich multiple of its free cash flow. Since then, the firm has worked down a portion of that inventory -- which it said was a unique situation relating to its new Chinese furniture operations -- but Hooker's valuation remains high by its own, historical standards.

My guess is that a good part of the recent discount reflects Wall Street's worry of a slowdown in the housing frenzy one of these days. I happen to agree with that concern, and the related phenomenon of happy homeowners using their paper equity gains to take out loans and go on buying binges. Any sales slowdown will be bad enough. But if it's exacerbated by a need to discount the big inventory rises over the past year, margins could get ugly.

As for whether a current P/E of around 10 constitutes a bargain for Hooker, look at it this way: In 2001 and 2002, the average P/E kicked around the 5-7 range. It's also traded at much lower multiples to sales and to book value than it currently carries. That suggests that Hooker could get a lot cheaper before it becomes a real bargain.

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Dumpster diver Seth Jayson is a bad furniture consumer. At the time of publication, he owned no shares of Hooker Furniture. View his stock holdings and Fool profile here.