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Ethan Allen 2/19/2003
Strng. Buy at $30.90.
Price targe: $50
By Chris Stallman
| E-mail
The last
year or two have been quite turbulent, particularly the last couple
of months. We've been up, then down, then up, then down. Maybe
you should take a little time off, relax, and treat yourself to
some new furniture to kick your feet up on. Or better yet...treat
yourself to some furniture stock for only $30.90/share.
The stock
I'm talking about is Ethan Allen Interiors and I think it could
be a good buy right now. The company, named after the American patriot
in the Revolutionary War, has revolutionary ideas for the furniture
business. The company owns 17 factories and over 300 furniture stores,
nearly all of which are in the US.
I like Ethan Allen because it's relatively cheap
right now, trading at 13.8 times earnings and 11.2 times next year's
earnings. Both of these are lower than the current industry average
of 18.3%. Furthermore, the company is carrying virtually no
debt and solid returns on equity.
What I Like About
This Stock
- Growth
potential - The company is strengthening its brand names with
the nationally syndicated TV Show "Famous Homes & Hideaways"
and places furniture on the Friends television show. There might
also lie more opportunities outside of the US if they prove to
expand their overseas operations.
- Virtually
no debt - The company has nearly no long-term debt, which means
they can put their capital to use in growing the business as opposed
to paying off debt.
- It's
still pretty cheap - Relative to the industry, the stock is pretty
cheap and has show solid long-term growth.
- Heavy
institutional ownership - The big-name mutual funds are confident
in having ETH in their portfolio.
- Strong
profit margins - It has a solid 51.3% gross margin and 9.4%
net margin, numbers that are higher than both the industry and
S&P 500.
What I Don't Like About This Stock
- Book
value still not that high - The book value is an unextraordinary
$13.98 and the price/book is below the industry average. Hopefully
something that will be improved.
- Revenues
are solid but not outstanding - The company experienced slightly
retreating revenues last year. However, this year, revenues are
up a little.
I think Ethan Allen is a great long-term investment.
With the fall of the rest of the market, the stock has fallen below
its 50-day moving average of $33.00. However, I think it'll
break out of this slump and retest its old 52-week high of $42/share.
And by the end of 2004, I see the stock at $50/share.
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