I should have listened. I knew better, but I thought I knew better -- if you get my drift.
You don't? Allow me to clarify. Back in March, Motley Fool Hidden Gems lead analyst Tom Gardner conducted his biannual summary of past Hidden Gems recommendations, discussing which of his selections he liked best, which he just liked, and which he was coming to regret. Near the top of the list: recent recommendation Stanley Furniture (NASDAQ:STLY). Somewhat farther down lay very early recommendation Hooker Furniture (NASDAQ:HOFT).
Both are fine companies, mind you. But Tom set forth the reasons why he preferred Stanley over Hooker. And fool that I am (note the small "f" here), I failed to heed the master. Caught up in a wave of nostalgia, I was sure that Hooker, a stock I had wanted to own for months, was still a better buy than HG newcomer Stanley. I bought Hooker. How have the companies fared since then? Judge for yourself.
Of course, that's just their short-term stock performance. At Hidden Gems, we realize that small caps can be volatile. We don't place a whole lot of weight on relative performance in the short term -- and three months is a terribly brief time frame for judging relative winners.
So rather than obsess over the stocks, let's focus on the businesses. Back in June, Hooker reported a 41% jump in inventories alongside a 3% decline in year-over-year sales. Not good. Two weeks later, Stanley's turn came at bat, and the company just plain knocked the hide off the ball.
Whether you focus on Stanley's performance for Q2 2005 vs. Q2 2004 or compare the first halves of each of those fiscal years, sales grew 16%. Profits grew a bit slower within each period, increasing 10% in the quarterly comparison and 14% year-to-date. While you're free to point out that profit growth lagging sales growth is not the most desirable state of affairs, if given the choice between Stanley's stellar performance and Hooker's recent losing streak, I'll take Stanley's "excessive" sales growth any day.
Add to that the company's doubling of year-to-date free cash flow production (to $13.1 million, up from $6.4 million for the first six months of 2004), its 4% decline in accounts receivable, and its 7% decline in inventories -- all in the context of rising sales, remember -- and Stanley's turning out to be the clear winner here.
Next time, I'll listen to Tom.
Rich knew better (even if he didn't act on it). Wouldn't you also like to know which stocks Tom Gardner and his merry band of Foolish stock pickers prefer? You can, with a free 30-day trial to Motley Fool Hidden Gems . You'll also get full access to all of our past stock picks. No strings attached. Cancel any time. You have our word on it.
As should be painfully obvious by this point, Fool contributor Rich Smith owns shares of Hooker Furniture, but not of Stanley. The Fool has a disclosure policy.
