Friday, September 5, 2008

Value In Action: The Finish Line

The Finish Line (NASDAQ: FINL) represents a great recent example of how markets behave irrationally. FINL operates 700 stores in the US selling brand-name athletic footwear. In March of this year, following a settlement with Genesco after a botched deal, FINL traded at just over $4 per share, for an approximate market cap of $233 million. Let's take a look at their balance sheet from that time period:

Cash: $73 million
A/R: $8 million
Inventory: $268 million
PP&E: $434 million
Total Debt: $0

Therefore, even if you believe that all their fixed assets are worth nothing, you would still be buying brand-name athletic footwear at a discount. Of course, you'll never want to leave an analysis at that. As we've discussed here, you'll want to read the notes to the financial statements and make sure you understand what the company is up to. You'll also want to make sure management is not running the company into the ground, which you can judge by looking at their operating earnings for the past several years.

Here's a look at what has happened since March. A prudent value investor has made a killing:


heterocedastico said...

Funny that you talk about finish Line.

I caught this opportunity in March. I was folloowing it for several months and its case with genesco. After it reach an agreenment I did some math and came up with a tangible book that was substancilly higher than its last price. So I bought it.

To bad that I sold it once it reached that tangible book but it was trading at similir multiples than its competitors and the real opportunity that I saw was vanished.

I followed this opportinity here at this forum

PS: Sorry about my english but i'm from Portugal-Europe. I really like you blog.


Saj Karsan said...

Thanks for the kind words, Hetero!

PS Do not worry, your English is better than that of many blogs!

Unknown said...

Thanks for the great website - I especially like the "Value in Action" section.

I'm curious in this example how much you factor in operating leases into the analysis. A quick look at their 10K shows that these are significant (not at all surprising for a retailer, of course.)

Do you capitalize them and how does that affect your comfort in the valuation?



Saj Karsan said...

Hi Aaron,

Absolutely, I capitalize operating leases. However, they not only a liability but also an asset, hence they don't subtract from the company's inventory. However, they do increase the overall risk level of the company, and so tests regarding whether the company's assets and cash flows can cover upcoming payments must be made.