Undervalued Company of the Week – FINL

The company of the week this week is Finish Line Inc. (FINL), a mall-based specialty retailer offering men’s, women’s, and children’s brand name footwear.  As we did last week, we will be looking reviewing the company using Warren Buffett’s approach for the Business & Management Review.  We will also use Benjamin Graham’s overall philosophies to guide our Financial & Value Review.

Business & Management Review

1.  Is the business simple and understandable?

     Finish Line is in the simple business of retail.  Not much else to say here.  This isn’t a complicated quantum physics company or anything.

2.  Does the business have a consistent operating history?

     The company was founded in 1976 with a “niche market to sell name brand athletic shoes and clothing at a competitive price.”  This is the same niche market they operate in today.  Management throughout the company’s history has not veered from the overall vision of the founders.  This is not to say that the company is stagnant in its operations strategy.  To the contrary, it has consistently looked for ways to evolve with the industry.  A company brand apparel line was recently introduced, the Finish Line Blue Lapel.

3.  Does the business have favorable long-term prospects?

     Finish Line has grown considerably the last 10 years, and it appears that growth should continue into the future.  Long-term, we believe the company should look to adapt slightly as it seems the era of the shopping mall is coming to an end.  We would like to see more free-standing stores opening.  The international market is also a potential area for continued growth.

4.  Is management rational?

    The two founders of the company, Alan Cohen and David Klapper, are still involved in the company, as the Chairman / CEO and Senior Executive Vice President, respectively.  We view this as a good sign.  The two have a proven record as the managers of the firm, having grown it from nothing to the second largest athletic apparel retailer worldwide.  We trust that their performance will continue to excel and the company will benefit going forward.

5.  Is management candid with its shareholders?

     Finish Line has a very candid investor relations site, providing all the essential information as well as a detailed company history and timeline in an easy to navigate format.  The only thing we would like to have provided on the investor relations site is biographies of executives.

6.  Does management resist the institutional imperative?

    We believe the management’s track record over the last 30 years suggests they resist the institutional imperative.  It isn’t easy to grow a company as well as they have without striving to do things differently than competitors.

Financial and Value Review

Upon our review, we find Finish Line Inc. to be suitable for the enterprising investor but not the defensive investor following Benjamin Graham’s value investing strategy.  The company’s size and lack of consistent dividend payments over a 10 year period eliminate it from the defensive investor’s portfolio.  With a PE ratio (see Our Methods) of 9.6 and a PB ratio of 1.24, we believe this is an excellent investment opportunity.

We believe the company has potential to reach $16/share in the next few years. 

Neither of us held a position in Finish Line Inc. at the time of publication.  Also, please read our disclaimer and Our Methods.

Please register and discuss this article in our forums.  Your comments help us mold our future articles.