NEW YORK (TheStreet) -- Athletic footwear and apparel retailer Finish Line (FINL) will report first quarter fiscal 2016 earnings results Friday before the opening bell. The stock, which is up more than 8% so far in 2015 -- besting the broader averages -- has been a standout performer in a retail sector cluttered with underachievers.
Owing to weak consumer spending, the group, which includes chains such as Five Below (FIVE) - Get Report and Wal-Mart (WMT) - Get Report, has been one of the worst performers this earnings season. Beyond a few upbeat results from some prominent names, the sector has also witnessed -- in some cases -- a bloodbath, causing the SPDR S&P Retail ETF (XRT) - Get Report to underperform the S&P 500 (SPX) index in the past three months.
Still, it would be a mistake to part with a winner like Finish Line solely on fear it will fall prey to weak consumer spending. The Indiana-based company, which grew same-store sales by some 3% in its fiscal fourth quarter, is finding ways to not only get more customers into its stores, but get them to spend more.
What's more, with plans to close poor-performing stores, Finish Line looks well-positioned to grow long-term profit margins by reducing operating expenses. Additionally, better-than-expected results released from rival Foot Locker (FL) - Get Report would appear to indicate that sales in the athletic footwear market continue to gain traction.
Priced at just 15 times earnings, Finish Line stock is one of the few bargains that remain in retail. And by "bargain," I'm referring to a combination of the stock's valuation multiple relative to the rest of the market when also factoring the company's actual performance. Some retail stocks have gotten punished recently and are also trading at cheap valuations, but that doesn't mean they didn't deserve it. "Cheap" is sometimes cheap for a reason. In the case of Finish Line, that P/E ratio of 15 times -- compared to an average P/E of 21 for stocks in the S&P 500 index-- reflects a stock that remains grossly undervalued.
Looking ahead, based on fiscal 2016 earnings estimates of $1.75 a share, the P/E doesn't budge, staying at 15. As for fiscal year 2017, the P/E drops to 13 based on average earnings estimates of $1.96 a share.
And here's the thing: Fiscal 2017 estimates call for earnings growth of 12% from fiscal 2016. That translates to an earnings growth acceleration of more than five percentage points above Finish Line's projected five-year annual earnings growth rate of 7.7%. This means Finish Line foresees its quarterly results getting markedly better in the quarters and years ahead.
In short, even though the stock has raced some 13% higher in the past six months, there are plenty of reasons to want to own these shares or add to existing positions ahead of Friday's results. With Finish Line trading at around $26, down some 18% from its 52-week high of $31.90, investors looking for an undervalued name in retail would do well to be patient and hold these shares, while collecting their 1.36% annual dividend.
This article is commentary by an independent contributor. At the time of publication, the author held no shares in any of the stocks mentioned.