Whoosh! That was a close one, folks. But never fear, Motley FoolHidden Gems recommendation Stanley Furniture (NASDAQ:STLY) dodged the bullet that arrived today in the form of an analyst downgrade for rival and co-Hidden Gems pick Hooker Furniture (NASDAQ:HOFT).
Downgrades often hit more than just the company they're aimed at (see today's price falls at rivals such as Ethan Allen (NYSE:ETH), Furniture Brands (NYSE:FBN), Haverty (NYSE:HVT), and Bassett (NASDAQ:BSET) for proof). But it seems investors have enough confidence in the Q1 2006 earnings news that Stanley will report tomorrow that they're willing to give the company the benefit of the doubt here.
What analysts say:
- Buy, sell, or waffle? Six analysts track Stanley's fortunes, with two of them voting "buy" and the rest counseling "hold."
- Revenues. Analysts expect to see Stanley's sales flag, dropping half a percent against Q1 2005 to $82.6 million.
- Earnings. Profits, however, are expected to climb another 5% to $0.46 per share.
What management says:
There's good reason to expect those profits to continue growing, too. According to CEO Jeffrey Scheffer, commenting on last quarter's results, "Consistent execution of our strategy has resulted in market share gains that drove most of our sales growth" -- so even if the broader market for furniture is looking weak to the Matrix analyst who downgraded Hooker, by grabbing market share, Stanley may be able to keep its profits growing.
When you consider that Stanley says that "industry sales trends were positive" in 2005, that sounds even better for the firm.
What management does:
And as usual, the numbers back up Stanley's words. Although gross margins have been weakening over the last few quarters, the firm is keeping its operating and net margins remarkably steady.
|
Margins % |
9/04 |
12/04 |
4/05 |
7/05 |
10/05 |
12/05 |
|---|---|---|---|---|---|---|
|
Gross |
24.0 |
24.7 |
24.9 |
24.7 |
24.5 |
24.5 |
|
Op. |
10.9 |
11.3 |
11.4 |
11.3 |
11.2 |
11.2% |
|
Net |
6.5 |
6.8 |
6.9 |
6.9 |
6.9 |
7 |
One Fool says:
Meanwhile, over on the balance sheet, Stanley continues to run a very tight ship. In the last six months, the firm grew sales by 3% on average, while its accounts receivable grew just a hair slower than that, and inventories actually declined 2%. Result: The firm again generated more free cash flow than it reported in earnings under generally accepted accounting principles, $13.6 million to $11.6 million.
Sterling results all around, and we look forward to seeing more of the same tomorrow.
Join Tom Gardner and the rest of the Motley Fool Hidden Gems community as they discuss small-cap stocks that are set to grow.
Fool contributor Rich Smith does not own shares of any company named above.
