My, how time flies. Seems I somehow allowed two consecutive earnings reports from American Woodmark (NASDAQ:AMWD) to slip by me, unnoticed. And here I see the company's reporting good news (relatively speaking) for a change. It's high time we checked back in on the little Virginian cabinetmaker and learned what's up -- aside from the stock price, which opened 25% higher yesterday after beating analysts' earnings estimates.

Wall Street was looking for a $0.06 loss in Woodmark's fiscal second quarter, but management reported a loss just half as big. Sales dropped 16%, on par with how they performed in Q1.

Woodmark blamed weak sales in the new construction market (down 20% year over year) for the bulk of the loss, as homemakers such as Lennar (NYSE:LEN), Pulte (NYSE:PHM), and Ryland (NYSE:RYL) continue to struggle. Remodeling sales, heavily dependent on retailers such as Lowe's (NYSE:LOW) and Home Depot (NYSE:HD) for distribution, fared only slightly better, down in the low teens.

And of course, lower sales bring with them a loss of efficiencies of scale. As a result, the gross margin dropped once more, this time to 14.4%, compared with 17.3% last year.

Hang in there, baby
All of this news puts me in mind of that simply adorable poster of the kitten dangling from the tree limb. As tough as the sales environment looks right now, Woodmark is doing a yeoman's job of hanging on and waiting for the fire department to arrive with a ladder.

The housing market may be collapsing. Woodmark's sales are dwindling, and its profit margins are evaporating into thin air. But still, the company remains cash profitable. In fact, first-half free cash flow at the company is actually up 16% over last year's first half, at $9.5 million.

Annualize that figure, and you'll find that this company (i.e., its enterprise value) is selling for less than nine times its annual cash profits. That looks appropriate -- even generous -- in the current economy, but I'd encourage you to think a little longer-term on this stock. Consider that for every year this "housing recession" lasts, Woodmark is socking away pent-up demand for remodeling outdated cabinets, and installing new ones in new homes.

When the economy improves, investors will look back on today's price as a bargain they shouldn't have let slip away.

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