Handleman gets a big haircut

Handleman, a value stock pick of mine recently, is currently trading down 15%, after reporting only 68 cents in Net Income for Q3. Compared to the $.94 it made during the same quarter last year, this is unimpressive. They are still on track to possibly make the $1.30 on the year, however.

HDL bought about 500,000 shares back recently, too. This reduced the floating shares by approximately 2.4% - not too drastic, but it reiterates that the company believes its shares are undervalued.

In the report (summary), they noted that music sales were down 6.2% - although this number doesn't include services like iTunes. Services like iTunes epitomize Handleman's troubles - people don't need to buy CD's at stores, so the business is shrinking, although revenue did grow slightly due to an acquisition.

The report was not optimistic for the company. Sales in their core business are down, and margins have been cut 3%. The picture isn't pretty, but perhaps deep value investors finally have Handlman at a price they want. Consider that the company should still produce near $1 in free cash flow while trading in the high $9 range today, and the $0.32 dividend is still being paid.

That being said, we should wait for today's dust to settle before moving in on this "cigar butt" value investment play. It is a dying business. I would expect selling to still have continued pressure on the stock, and since it only has 20 million shares floating, it could be a volatile one for a few days.