Wall Streets seems to be forgetting about this furniture maker

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Here's the podcast episode for this post

Ethan Allen, a furniture company that was founded in 1932, is a household name in furniture. Their furniture, produced with high-quality materials and made in the USA, has been doing well for a long time. People will say that having Ethan Allen furniture adds status to your home since their furniture is a status symbol. 

While many furniture companies have suffered from the retail apocalypse, Ethan Allen has found ways to thrive during a time of transition in the retail industry. By making their stores as designer stores, customers can come into the store, check out the various pieces they have, and order a customized piece for their home. This allows them to operate under smaller retail spaces (since they won't be needing places to store tons of inventory) and give customers a better experience. 

Despite the many improvements that Ethan Allen has done, it's stock seemed to lag compared to its peers like Williams Sonoma and Restoration Hardware. During the recently strong stock market rally, many furniture makers like Williams Sonoma, Wayfair, and Restoration Hardware all skyrocketed from its lows. Meanwhile, Ethan Allen shares lagged its peers. 

Let's take a deeper look at Ethan Allen.

While some might think that the reason why Ethan Allen is lagging its peers is that it might have a weaker balance sheet, according to its latest investor presentation, Ethan Allen looks to have a strong balance sheet. 

Look at its long-term debt. The company clearly has been paying down its debt aggressively. While shareholders' equity has been decreasing, with less debt, the company looks to be stronger and ready to reverse shareholders' misfortunes. 

Also, Ethan Allen management looks to be generous with its shareholders. 

With the company spending more on dividends, Ethan Allen shareholders are getting paid directly by the company to own its stock. Regarding share repurchases, it's interesting to see that the company has decided to halt buybacks. Because of the pandemic, the company decided to halt buybacks in order to preserve its cash reserves. Meanwhile, those dividends look to continue growing. 

For those wanting to invest in companies with higher morals, Ethan Allen has continued to source its materials from sustainable sources. This makes the furniture maker less destructive to the environment. 

Plus, vertical integration has been Ethan Allen's strong point. Besides designing their own furniture (making them a unique furniture maker), Ethan Allen has also made many partnerships with various vendors whether they be suppliers or potential distributors. 

One catalyst that is bullish for the company is its growing US Government Contract business. That business line has been growing rapidly. Because of that, Ethan Allen has invested a lot more in expanding production. This business line will boost volume growth and hopefully, Ethan Allen won't experience diseconomies of scale and instead reap the benefits of having economies of scale. 

Besides the US Government Contract division, Ethan Allen has been opening more designer stores in emerging markets and various untapped markets. Places like China, Cambodia, and Thailand have had an immense growth in the number of designer stores under Ethan Allen as management looks to capitalize on the growing wealth in the region. The booming middle class in those regions would look forward to owning designer American-made furniture, giving them a taste of luxury for their hard work. 

Overall, Ethan Allen looks to be a hidden opportunity in the stock market. With a growing business and stronger balance sheet, Ethan Allens looks to be a great value stock now and will hopefully become a great growth stock soon. 

Here's the link to Ethan Allen's investor presentation