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Why is Books A Million so Cheap?

|Includes: Books-A-Million, Inc. (BAMM)

Books A Million (NASDAQ:BAMM) recently reported Q4 results that apparently dissappointed investors (demonstrated by the stocks 19% fall since the earning release).  Revenues were down 2.6% y/y while EPS dropped 42% from the year before from $0.76 to $0.44.  Full year EPS dropped 35% from last year from $0.88 to $0.57.  While these trends are certainly not encouraging, when investors consider that BAMM is trading at 7.4x's last years depressed earnings, it pays shareholders a 3.9% dividend and has a very strong balance sheet, it warrants a second look from investors looking for a cheap stock. 

BAMM pros: 7.4 P/E (ttm), 3.9% dividend, 52 EBITDA/ Interest Expense, 0.6 Price/Book Value, minimal impact from competitor's store closings (discussed below), strong focus on maintaining margins.

BAMM cons: shrinking revenues, same-store sales decrease of 6.7%, questionable business model going forward,and a family management team with a private jet and >51% control. 

Much attention has been placed on the fact that one of BAMM's competitors has filed chapter 11 and is closing approx. 200 stores; however, a closer look at the geographic intensity of that competitor's store closings with the geographic intensity of BAMM's locations yields only a 25% correlation. The competitor's store closings' impact should be de minimus on the historically slow Q1 results.   

Prescription: BAMM should: 1) Initiate a $10 Million share buyback program which aggressively buys shares below $5 2) Sell management's jet while normalizing SG&A expenses. 3)Raise the dividend to $.06 next quarter

Disclosure: I am long BAMM