Finish Line: Racing to profits

Our approach is buy stocks using investment models that are based on the strategies of long-standing experts.

Finish Line (FINL) gets high marks from 3 of my strategies, those I based on the writings of Peter Lynch, James O'Shaughnessy, and Martin Zweig. Below, we look in more detail at O'Shaughnessy's Growth/Value Investor strategy.

Finish Line is a mall-based specialty retailer in the United States. Finish Line is a retailer of athletic shoes, apparel and accessories.

As of April 2011, the company operated 660 Finish Line stores primarily located in enclosed shopping malls.

The first requirement of the Cornerstone Growth Strategy is that the company has a market capitalization of at least $150 million.
This will screen out the companies that are too illiquid for most investors, but still include a small growth company. FINL, with a market cap of $1.1 billion, passes this criterion.

The Cornerstone Growth methodology looks for companies that show persistent earnings growth without regard to magnitude. To fulfill this requirement, a company's earnings must increase each year for a five year period.

FINL, whose annual EPS before extraordinary items for the last 5 years (from earliest to the most recent fiscal year) were -0.89, 0.55, 0.92, 1.26 and 1.61, passes this test.

The Price/Sales ratio should be below 1.5. This value criterion, coupled with the growth criterion, identify growth stocks that are still cheap to buy. FINL's Price/Sales ratio of 0.80, based on trailing 12 month sales, passes this criterion.

The final criterion for the Cornerstone Growth Strategy requires that the Relative Strength of the company be among the top 50 of the stocks screened using the previous criterion.

This gives you the opportunity to buy the growth stocks you are searching for just as the market is embracing them. FINL, whose relative strength is 68, is in the top 50 and would pass this last criterion.

Overall, the company has been growing earnings at a 28% pace over the long term, yet trades for about 13 times earnings and 0.8 times sales.

It also has a PE-to-growth ratio below 0.5, no long-term debt, and a return on equity of 17%. We are adding the stock to our Hot List of favorite buy recommendations.



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