Stock bounce reflects growing investor interest
Jerry Epperson -- Furniture Today, September 7, 2009
Do you feel more attractive? Do you feel wealthier? You should.
Believe it or not, the investment community is interested in home furnishings again, and it shows in the public companies' stock prices.
Since early March when the stock market troughed, the Dow Jones Industrial Average has risen by more than 40% but the average stock price among the larger public furniture companies has risen 175% and the mattress companies have increased 390%!
Before we all break into choruses of “I feel pretty…,” we need to consider what is happening.
First, these stock prices are not reflecting higher earnings. In most cases (10 out of 12), there are no earnings! The stocks are more accurately reflecting the prospects of future earnings, and the assumed benefit we will receive from an increase in home sales, easier credit and a more confident consumer in the future.
Second, because home furnishings are directly impacted by the three elements that were most depressed in the last year-and-a half, our stocks were more depressed than others. Let's face it, some investments were negatively impacted by weaker home sales, while others were hurt by constricted credit availability or declines in consumer confidence. We were hurt by all three.
Third, as these stocks were slammed, the large investment funds often had to sell the stocks because, by charter, they are prohibited from owning companies with a market capitalization below certain defined levels. As the stocks bounce back and their market caps grow, the funds may buy them again, adding to the upside.
Fourth, even though some companies such as Stanley, Tempur-Pedic and Haverty are within 10% of their latest 12-month highs, the average furniture stock and mattress manufacturer is still selling 53% and 33%, respectively, below the latest year's highs.
So what does this mean to you?
First, if you own a company, the higher value of the comparable public companies implies your company is worth more, too. If you want to gift some stock at a low value, do it soon or risk higher valuations.
Second, we may see some public offerings in the next year. Higher stock prices and minimal earnings equal a high price-to-earnings ratio. If your performance recently was decent, this might be worth a consideration.
Third, private equity groups and other investors are looking our way again.
I take great comfort that all of us were smart enough to load up on La-Z-Boy in March at 53 cents per share and today it is $9.50, a mere 1,700% gain.
“I feel pretty, oh so pretty.…”
-
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