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Crown Crafts (CRWS.ob): Buying Opportunity on this Dip

Posted on February 14, 2007

After a stock has steadily risen from $0.60 to $6 in less than a year, it´s not surprising to see a correction even after solid financial results are reported. As such, we were not entirely taken aback by the drop in Crown Crafts (CRWS.ob) today, after the company reported what we believe were excellent 3rd quarter results.

It´s possible that some investors were not happy with the quarterly sales growth, but fluctuations in the top-line are to be expected in this type of business, which is heavily dependent on “big” retail buyers. Overall, we think it´s important to note that, year-to-date, the company has managed to grow the top-line, even amidst a major recapitalization. Furthermore, with the addition of two new licensed properties, the company has laid the foundation for solid potential growth over the next year.

Perhaps, the key thing to take away from today´s financial results is that Crown Crafts remains a solid cash generator. During the quarter, the company further reduced debt by $4 million, to $6.5 million. This compares to $24 million in debt only a year ago. We believe that about half of the company´s remaining debt is interest free. So for all intents and purposes Crown Crafts is now debt free. An amazing feat considering the company was on the edge of bankruptcy not too long ago.

Now with the company´s financial position strengthened and cash-flow stabilized, we fully expect management to aggressively grow the business via additional license acquisitions. We still think that with the stock trading at a substantial valuation discount to similar businesses (e.g. Russ Berrie: RUS), that Crown Crafts´ shares could provide 50%+ appreciation over the next twelve months, if top-line growth accelerates, as we predict.

Finally, we think that since the company meets all the requirements for a NASDAQ listing that the shares will move off the bulletin board and onto NASDAQ sometime in the next twelves months. This move could bring new buyers into the stock and provide a catalyst for renewed price appreciation.

Please Note: We first recommended Crown Crafts (CRWS) at $3.60, and still hold a position in the stock. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

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This site may include market analysis and we may own shares in the stocks mentioned in our reports. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

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