Call it an epidemic of the furniture flu.
Late Wednesday evening, after the markets had finished their day's buying and selling, Motley Fool Hidden Gems pick Stanley Furniture
The day after the news broke, Stanley's shares opened 9% lower before paring their losses to just 4%. What's more, investors apparently decided that Stanley's sickness was contagious, as its peers saw their own share prices get a wee case of the furniture flu. Furniture Brands
This isn't exactly an uncommon occurrence, when weakness in one company is interpreted -- counterintuitively, I'd argue -- as being bad for its competitors. But in the case of Stanley's warning, the market's worries aren't quite groundless. Lending context to its announcement, Stanley CEO Jeffrey Scheffer described the company's "weaker than previously anticipated" sales as "a result of overall industry conditions," rather than any problems specific to Stanley. Looking at Stanley's own recent sales trends, Scheffer predicted that this current weakness in the furniture market will "persist for the remainder of 2006."
Is now the time to buy Stanley, while the market calls it weak? I vote no -- and as soon as this article posts, I'm going to put my money where my mouth is by rating Stanley an underperformer on the Fool's new CAPS stock ratings system. Based on Stanley's latest full-year profits projections, the firm has a P/E of about 16, against long-term earnings growth that analysts project at just 10% per annum. I think that makes for an overvalued stock -- and a CAPS underperformer to boot.
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Fool contributor Rich Smith does not own shares in any company named above. Stanley and Hooker are both Motley Fool Hidden Gems picks. La-Z-Boy is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.