Signs indicate healthy stretch for Ethan Allen

Ethan Allen Interiors (NYSE: ETH), the home-furnishing and interior design specialist, relies on a healthy U.S. economy and low lending rates to push its business higher – and these days, both of those factors are present.

In the fourth quarter, U.S. GDP advanced 2.6 percent, and interest rates are still near record lows. This can nudge home prices higher and help homeowners redesign or add value to their new or existing homes.

Ethan Allen did take a bit of a hit recently, though, after announcing quarterly results that lagged expectations. However, higher expenses tied to freshening up its stores’ interiors, launching a new and updated website, introducing new product offerings, and investing in new technology, both on the manufacturing and logistics side of the business, hampered results.

These costs are unlikely to last beyond 12 to 18 months, and they’re critical to maintaining Ethan Allen’s long-term growth strategy, which includes expanding abroad, such as in China. Meanwhile, the stock recently sported a price-to-earnings (P/E) ratio near 18, and a forward-looking one near 14, both well below its five-year average of 20.

Long-term believers in Ethan Allen can collect a dividend that recently yielded 1.7 percent. Better still, its dividend, though slashed during the market ugliness of 2009, has been hiked significantly in recent years. Ethan Allen may not grow quickly, but it can reward patient investors.

Ask the Fool

Q: Should I invest in savings bonds or CDs for my kids? – M.T., Salt Creek, Colorado

A: It depends. Less-volatile investments such as savings bonds, money market accounts and CDs can seem “safer,” and thus best. But with many of them yielding only 1 or 2 percent, money in them will likely lose purchasing power over time just due to inflation.

In the long run, stocks have generally outperformed those safer investments. We can’t know how the stock market will fare in the next few months or years, but the longer you leave your money in healthy and growing companies, the more likely you’ll be to do well.

With stocks, it’s best to invest only money you won’t need for at least five years (or 10, to be more conservative). If your child is 16, it can be risky to put college money in stocks. But if she’s 6, it’s a good choice.

Perhaps start with an inexpensive index fund, such as one based on the S&P 500. You might also invest in the stocks of a few companies that your children know and like, and then follow them together.

Learn more at treasurydirect.gov, investopedia.com/university/ indexes and fool.com.

Q: Where online can I look up the rate of home value appreciation in a region? – S.D., Pumpkin Center, North Carolina

A: One good resource is mortgage giant Freddie Mac. At freddiemac.com/finance/fmhpi, it provides its Freddie Mac House Price Index (FMHPI), measuring typical price inflation for houses nationally and within each state. Or look up data on 20 metropolitan regions via the S&P/Case-Shiller Home Price Indices at us.spindices.com. Realtor.com offers local market conditions, too, and you can also get lots of information from good real estate agents in your area.

My dumbest investment

The first dumb thing I did was to buy Akamai Technologies when it was a new IPO for $179 a share. The second dumbest thing was not buying more shares when it was trading for less than a dollar per share. – M.B.M, Eugene

The Fool responds: Wow – that’s quite a range of prices! It’s risky to buy any stock when it debuts via an initial public offering (IPO). Typically, it’s mainly insiders who get to buy at the low initial prices, leaving the rest of us to grab shares as the stock quickly zooms up – if it’s a much-anticipated and hyped debut. A year or two post-IPO, many stocks trade well below their IPO levels, reinforcing the idea that it’s usually best to wait a few years for an IPO to cool down.

Akamai, a cloud computing specialist, debuted in 1999, a bit before the Internet bubble burst, and then it crashed hard, along with many other companies. Those who believed in the company and hung on now have a company worth more than $12 billion, with a stock price recently above $70 per share.