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Perennial net/net (trading below net current asset value) and diamond company Lazare Kaplan (LKI) took it on the chin Friday following the announcement of 2nd quarter results. Net sales for the three and six month periods ended November 30, 2006 were $94.4 million and $233.3 million, down slightly from last year's $96.3 million, and $235.1 million. Gross margins for both periods also fell. Net loss for the quarter was $1.4 million ($3.2 million for six months), vs. a loss of $1.4 million (income of $500K).

The company cited an increase in the sale of lower margin products (rough diamonds) for the fall in sales, and declining margins. We've yet to see a second quarter balance sheet.

Shares fell nearly 7 percent Friday (to $9.96) on triple the average volume....that's triple the typical 3,000 shares normally traded, hardly meaningful. The company had been on a nice run as of late, recently approaching the $11.00 mark.

We continue to hold LKI in our portfolio, and see it as a rare opportunity to own a net/net with potential and undervalued assets. Our shares are still up 28% since we took a position this past March.

Disclosure: the author owns shares of LKI.

LKI 1-yr chart:

LKI 1-yr chart

Source: Lazare Kaplan Falls On Weak Quarter - Still An Attractive Value Stock