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Money Spinning In Home Improvement

Jan. 01, 2014 3:55 PM ETHOFT, KIRK
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Long/Short Equity, Portfolio Strategy

Seeking Alpha Analyst Since 2012

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While the housing market in the United States continues to rebound, more and more opportunities are coming up in related sectors and industries. One such space is home improvement, where players such as Hooker Furniture Corporation (NASDAQ: HOFT) and Kirkland's Inc. (NASDAQ: KIRK) offer reasonably good opportunities to investors on the long side, even in a fully valued market. Here is a closer look.

As the name suggests, Hooker Furniture Corporation offers case goods furniture and upholstered furniture to residential customers in the U.S. Although its top line has not grown by leaps and bounds in the last few years, the company has made great inroads in boosting profits. From a net income of $3 million in 2009, Hooker's annual profits have jumped almost three times. The stock's double digit percentage growth over the last three months largely derives its strength from vastly improved financial performance. Despite the growth, the stock trades at a prices earnings multiple of 17.4, which drops further to 14.4 when future earnings are taken into account. A debt free balance sheet and a dividend yield of 2.5 percent are some other positives interested investors can consider. The stock has corrected close to 7 percent in the last week over concerns regarding earnings in the latter half of the year. Traditionally, the company witnesses stronger demand in the first-half of the year, so some softness in sales and profits is already built into the stock. With strong fundamentals in place, investors can look to take advantage of this correction for initiating fresh long positions.

Kirkland's Inc. is a specialty retailer of home decor merchandise and gifts in the United States. The items company sells largely fall in discretionary expenditure category and as such, went through a lean phase in recent years when the economy was not doing good. Its profits declined consistently through the last four years and the stock price tanked as a result. However, the company turned a new leaf when it beat street expectations with its third quarter results. Net sales jumped from $96.7 million in previous year's third quarter to $106.1 million in the latest reporting period, up nearly in double digits. The company also reported net income of $1 million during the quarter compared to a loss of $0.4 million in the same period last year. None of these figures are exceptionally large, but the transition to profitable operations is an indication of better times ahead for the company and the stock which looks attractive at a forward price earnings ratio of 21.7.

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