Ever since Finish Line (Nasdaq:FINL) broke off its troubled merger with Genesco (NYSE:GCO) in March 2008, both companies have gone on to post excellent financial results. As part of the legal settlement ending the merger, Genesco shareholders received 6.5 million Finish Line shares. Those shares, if still held through March 9, are up 465% compared to 261% for Genesco's shares. There's no denying Finish Line has had a great four-year run. Genesco shareholders still holding Finish Line stock should continue to do so. Here's why.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Stock More Expensive

The last time I wrote about Finish Line in September 2010, investors could buy a dollar's worth of earnings (subtracting out cash) for less than $10. Today, you'll have to pay $13.80 for that same dollar in earnings. So, yes, it's more expensive. But you're also getting a much stronger company. Analysts estimate its fiscal 2012 earnings per share will be $1.59. Based on 53.1 million shares, that translates into net income of $84.4 million, a company record. Its trailing 12-month operating margin is 9.4%, 330 basis points (BPS) higher than in fiscal 2010 and 50 BPS higher than in fiscal 2011. Both gross and operating margins are higher than they've ever been. Most importantly, its annual dividend per share has gone from 3 cents in fiscal 2008 to 24 cents in fiscal 2013. It might only be a 1% yield at current levels, but it's better than nothing. Especially when you consider it's achieved a 10-year annualized total return of 10.3%, 670 BPS better than the S&P 500.


Finish Line's current enterprise value (EV) is 6.8 times EBITDA compared to Foot Locker's (NYSE:FL) 7.1 times EBITDA. In many ways, the two peers are very similar. They both have a significant amount of cash on their balance sheets with little or no debt. Almost every valuation metric has them side-by-side identical. There's very little difference between them except for the fact that Foot Locker's revenues are four times as large, and Finish Line has higher margins and general profitability. Finish Line's current EBITDA margin is 11.6%, 180 BPS higher than Foot Locker's. Yet, its current valuation suggests investors don't see it this way.

Finish Line and Peers



Finish Line (Nasdaq:FINL)


Foot Locker (NYSE:FL)


Genesco (NYSE:GCO)


Collective Brands (NYSE:PSS)




Capital Allocation

I've already spoken about Finish Line's 6 cents quarterly dividend, which amounts to approximately $12.5 million annually. The other way in which it returns capital to shareholders is through share repurchases. In July 2008, its board authorized a buyback of up to 5 million shares. By the time the program was replaced in July 2011, it had repurchased 4.7 million shares at an average price of $16.06. That's an additional $75 million returned to shareholders. As of the third quarter ending Nov. 26, 2011, Finish Line has returned a total of $159 million to shareholders in the form of dividends and share repurchases since July 2008. That's a significant portion of its free cash flow over the 40-month period. This is one major reason for its stock achieving positive total returns in seven of the last 10 years. The downside of this return of excess capital is it clearly overpaid for its shares. Trading as low as $3.42 in November 2008, it should have paid less. In the future, I'd like to see them increase the dividend and decrease the share repurchases. At some point its appreciation will come to a grinding halt and the extra dividends would provide something tangible in nature. However, I'm quibbling at this point. At its March 9 closing price of $23.94, despite overpaying, it has made a good return on its investment.

The Bottom Line

With no debt and performing better than it ever has, Finish Line has a good future ahead of it. The question remains whether it will be an independent one. Make no bones about it, private equity is salivating over the thought of owning this business. Whatever happens, its stock should continue to deliver solid gains.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  5. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  6. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  7. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  8. Investing Basics

    5 Reasons to Expect Lower Stock Returns

    Lower stock returns are likely here to stay for some time. Here are five reasons why.
  9. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  10. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
  1. Fast Fashion

    Definition of "fast fashion."
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!