Two months ago, I wrote that Motley Fool Hidden Gems watch-list pick and Stocks 2005 pick LowranceElectronics (NASDAQ:LEIX) was a potentially undervalued tech investment worth examining. Lowrance is a maker of sonar and GPS equipment that competes with Garmin (NASDAQ:GRMN) and Johnson Outdoors (NASDAQ:JOUT). Though I still feel that Lowrance was worth buying in March, investors who waited for the quarterly earnings must be feeling pretty smart today.

Lowrance reported a sales increase of 15% to go along with a decrease in net income of 3.5% for the quarter. Investors, as you might expect, were not impressed, and they have punished Lowrance's shares today to the tune of 10%-12%, depending on when you check in.

Coming into this earnings announcement, investors had a few reasons to be concerned about Lowrance. Its inventory levels were high, even though the company generally builds up inventory for its historically strong third-quarter sales. But the real sticking point for many folks was how the company did a secondary offering last year, consumed it all, and then turned around and took out a large slab of long-term debt shortly after.

All this was done in the name of expanding the business, through research and development for new products, and through expansion spending on sales and marketing for those new products. There are probably many doubters out there -- and rightfully so, with this quarter's poor showing -- but I remain cautiously optimistic, because there were some solid improvements this quarter as well. And I'm not referring to the headline touting the increased order backlog and dividend increase.

The positives I see reside on the balance sheet. They point to a strong quarter for the company from a free-cash-flow perspective, though we'll need to see the 10-Q to be sure. In short, since last quarter, long-term debt is down substantially, cash is up, and the company worked down its inventory from last quarter. Investors still have good reason to be concerned about the inventory levels, because inventories are up over 95% vs. last year, with only a 15% increase in sales.

At this point, Lowrance is far from a sure thing, but it isn't priced as one, either. It's also worth noting that management still owns a substantial portion of the shares outstanding. For those willing to tread in an area that has a bit of uncertainty, I still think Lowrance is worth a look.

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Nathan Parmelee owns shares of Lowrance but has no financial interest in any of the other companies mentioned. The Motley Fool has a disclosure policy.