Athletic footwear maker and Motley Fool Hidden Gems recommendation Saucony (NASDAQ:SCNYA) (NASDAQ:SCNYB) reported strong third-quarter profits on Tuesday, with net earnings up 54.5% year-on-year on a 32% increase in sales. However, share dilution knocked about 10% off of those profits by the time they fell to the per-diluted-share level. As a result, profits on both the company's Class A and Class B shares (which are allocated 110% of Class A profits but lack voting rights) rose "just" 40%.

Dilution aside, though, Saucony's overall profitability shows few signs of coming apart at the seams. The quarter's superb results were anything but an aberration, as can be seen from the company's year-to-date results, also reported Tuesday: Sales were up 26% year-on-year, generating net profit growth of 53% and about 37% growth in diluted earnings per share. Since the third-quarter growth rate exceeded the average growth over the past nine months, it appears that this company is gaining speed -- not slowing down -- as time jogs on. What's more, the third quarter's numbers actually carried a handicap -- $300,000 in extra legal fees incurred as part of the company's search for a buyer of this little cash-generating powerhouse.

Strengthening margins was one factor helping the company's earnings outpace revenue growth. Year-on-year, all of gross, operating, and net margins for the first three quarters of the year have increased. The bottom line result was a rise in the net margin from 6.6% to 8.0%.

Saucony now projects full-year 2004 profits of about $1.54 per diluted Class A share and about $1.69 per diluted Class B share. With both classes currently priced at approximately $23.30, that gives Saucony's shares forward P/E ratios of 15 and 14, respectively. Considering that for fiscal 2003, the two classes earned profits per diluted share of $1.26 and $1.38, yielding a year-on-year earnings growth rate of 22% for each (and PEGs of 0.68 and 0.64), both classes of Saucony stock appear to be quite attractively priced. They also carry a significant discount to the valuations attached to shares of competitors Reebok (NYSE:RBK) with a 0.9 PEG and Nike (NYSE:NKE) with a 1.3.

Take a free, no-obligation trial today to Motley Fool Hidden Gems for the scoop on lots of underfollowed and undervalued small powerhouse companies.

Read more about these three sneaker sellers in:

Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.