Hooker Furniture Probably Should Be Cheap, But Not This Cheap

There are two broad factors at play when it comes to residential furniture manufacturers like Hooker Furniture (HOFT). First, as I've noted for a few years now, Hooker and its peers have shown a noted tendency to contradict expectations. Strong quarters are followed by sudden weakness. A company that looks like it's headed in the wrong direction - as La-Z-Boy (LZB) appeared to be last year - will suddenly see improvement (albeit sometimes simply due to the benefit of easier comparisons). Looking at multi-year performance at HOFT, LZB, Ethan Allen Interiors (ETH), Bassett Furniture (BSET), and even RH (RH), it's simply difficult to find much in the way of consistency in either results or, usually, the companies' respective share prices.

Secondly, the market of late seems to have decided that it will not assign a multiple above ~13x earnings to pretty much any stock in the space. That's not entirely illogical. The aforementioned choppiness in earnings probably merits a discount. It also means that investors should look to take profits when possible, as I've tried to do with several of these stocks in the last five years (including, quite fortunately, HOFT last August), which can lead any rallies to stall out and reverse. Late-cycle concerns suggest lower multiples. Wayfair (W) and Amazon (AMZN) are a threat. Longer-term, there's the question of whether millennials will be able to afford to buy homes, will want to buy homes, and/or will fill those homes with higher-end furniture rather than buying cheaper products and spending the savings on the experiences they prefer.

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https://seekingalpha.com/article/4257644-hooker-furniture-probably-cheap-cheap?source=feed_all_articles

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