Flexsteel Industries (NASDAQ: FLXS), a Dubuque, Iowa-based manufacturer, importer and marketer of home furnishings has been registering a series of lower lows over the last four months resulting in a continuous decline, despite the occurrence of rebounds. The stock, currently priced at $31.72 per share, appears to be nearing the end of another rebound upon which a pullback will follow pushing it below its most recent lows. This has been the trend for some time now, and according to the current picture, the company seems set to continue with the tunnel decline through the near future.
The company has been reporting impressive sales and net income largely due to the current economic recovery in the U.S. that has been supported by a housing boom. Flexsteel has shown improved performance over the last few quarters registering a double-digit growth rates in sales. The performance has particularly helpful for the company pushing the stock from a low of $26 at the beginning of the year, to a high of $40 in April. However, since then the company has been on a decline registering lower lows at every rebound level, and consequently creating declining support and resistance levels.
The company currently trades at a P/E ratio of 17.58 times, which is slightly better than the industry average of 22 times. The stock looks marginally cheaper when compared to La-Z-Boy Incorporated (NYSE: LZB), one of its closest rivals. Flexsteel's gross margin of 26 percent is significantly lower, compared to LZB's 35 percent. The company also lags behind the overall industry average of 30 percent. Nonetheless, the company's P/S valuation multiple of 0.54 times compares favorably with LZB's 0.84 times, and 0.85 times for the industry average. The catch here is that for some reason, investors feel that they are not prepared to pay a heavy premium for Flexsteel shares, which underlines its unattractiveness among its peers. With the stock continuing to slip, it appears that it may become cheaper than the current valuation multiples. This also suggests why the company is getting rebounds after every other plunge, all be it on a short-term basis.
The company is currently on course to pay an annual dividend of 60 cents, based on the current quarterly run rate of 15 cents. This could also be another reason the stock is experiencing temporary recoveries before plunging further.
The bottom line is that by looking further ahead, the company remains attractive with EPS expected to grow by close to 40 percent next year. However, the 3.2 percent decline slated for this year could be a deterrent for a short-term uptrend. In this case, the chances of the current trend continuing appear more likely than an overall reversal in the short-term.
Therefore, Flexsteel looks well set to continue the current fall, at least for the next two quarters with dividends helping the stock to rebound temporarily. Nonetheless, upcoming results should be watched closely to identify any possible chances of an overall reversal.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.