Run -- Don't Walk -- Toward Finish Line for Its Dividend Payment, Growth Potential

Finish Line stock is a solid way to profit beyond its dividend payment.
By Richard Saintvilus ,

Shares of athletic footwear and apparel retailer Finish Line (FINL) will begin trading ex-dividend on Tuesday, Nov. 24. That's the day management of the company will finalize its roster of shareholders to whom it will mail cash dividend payments.

Headquartered in Indianapolis, Finish Line will make a payment of 9 cents a share that is scheduled to be paid on Monday, Dec. 14 to shareholders of record as of Friday, Nov. 27 -- the day after Thanksgiving. This would mark the fifth consecutive quarter Finish Line will make the 9-cent payment, but its dividend has been raised 125%, up from 4 cents a share since 2010. At the current stock price of around $16.50, its dividend yield is about 2% annually.

It's true, Finish Line's dividend yield is just in line with the average stock in the S&P 500 (SPX) index. But if you're looking for a company that is poised to outperform the S&P 500 in the next 12 to 18 months, Finish Line stock belongs on your radar.

Finish Line shares -- down some 32% in 2015 -- hasn't performed as well as investors hoped. The company's struggles mirror that of the retail industry, which has suffered from weak consumer spending. That has sent the SPDR S&P Retail ETF (XRT) - Get Report down 8% on the year.

Nonetheless, Finish Line stock, which trades at just nine times fiscal 2016 earnings-per-share estimate of $1.75, is grossly undervalued relative to its growth potential.

Sure, $1.75 in earning per share for fiscal 2016 implies 4.75% year-over-year growth above 2015 level of $1.67. This puts the company on track to grow earnings in fiscal 2017 at around 10% year over year, reaching estimates of $1.91 a share. Not only would this be twice the projected earnings growth rate of the S&P 500 index, Finish Line's earnings growth would have accelerated by about five percentage points above 2016, from 4.75% to 10%.

It is likely for this reason that Finish Line stock has an average analyst 12-month price target of $25. With operating margins still climbing (up 60 basis points in its fiscal second quarter), and a 1.5% year-over-year increase in second-quarter comparable-store sales, Finish Line has not performed as poorly as its stock price might indicate.

Investors should run, not walk toward this opportunity.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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