The Rowe Companies (AMEX:ROW) announced today that it would commence voluntary proceedings under Chapter 11 in an attempt to restructure the company and return it to profitability. The company has been beaten up from its highs of nearly $6 in 2005 to its current price of just $0.43. The company announced that it plans to sell off its retail division - Storehouse, Inc. - so it can focus on its core manufacturing operations. Meanwhile, Rowe intends to continue with business as usual with not even a payroll modification.

So, why is this company worth noting? Well it turns out that bankruptcies can provide investors with great opportunities to profit. The key is not in buying stock now, but rather after the company emerges from bankruptcy. Often times these companies will issue new shares to creditors, which the creditors have no interest in keeping. Therefore, there is almost always a sell off that floods the market with cheap shares. It is also important to look at the "new" company's financials once (and if) they emerge from bankruptcy. Rowe will likely report pro-forma earnings that will show whether the company is performing poorly overall due to bad management, or whether the retail segment was responsible. If it was only the retail segment causing trouble, and the company has sold it off, Rowe could be an attractive investment long-term.

Not all companies perform great after emerging from bankruptcy, but a combination of creditor selling pressure and a sale of any poorly performing segments tilts the odds in investors' favor. This stock is definitely one to watch as this situation unfolds...

Related Companies
La-Z-Boy Incorporated (LZB)
Hooker Furniture Corporation (HOFT)
Ethan Allen Interiors, Inc. (ETH)