It's easy to miss little shoemaker K-Swiss (NASDAQ:KSWS) among the next batch of companies hanging around the starting gate. Look really closely, though, and you'll find it in there, prepared to report its Q4 and full-year 2005 results before the market opens tomorrow.

Wall Street Wisdom:

  • General consensus. Wall Street, by and large, seems ambivalent about K-Swiss. Although one analyst rates the stock a buy, seven more call it a hold. There are, however, no sells.
  • Revenues. Based on analysts' expectations for K-Swiss' sales growth, the lack of enthusiasm is understandable. Wall Street is looking for just 2% growth over Q4 2004 and $90.5 million in sales for the quarter.
  • Earnings. Profits, on the other hand, are expected to be strong. With $0.26 per share projected, the belief is that K-Swiss grew its per-share profits by 13% year over year.

Margin watch:
What's behind the strong profits growth? Margins, of course. Although K-Swiss has been able to make little headway on its gross margins, and its operating margins today remain right where they were 18 months ago, the company has grown its net by, on average, about 300 basis points over the past year and a half.

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

45.0

45.4

45.7

46.1

46.2

46.4

Op.

20.7

21.3

21.0

21.5

21.1

20.7

Net

12.7

13.5

14.7

15.5

15.7

15.7
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish forensics:
The company is also performing well on the metric that Fools value most: free cash flow. Last quarter, K-Swiss grew free cash flow by 4% year over year; the quarter before that, it grew FCF by 90%. The company's secret: excellent inventory and accounts receivable management. Despite growing sales in each of the past two quarters (versus the year-previous numbers), the company reduced its inventory levels against their corresponding year-previous levels. And while accounts receivable did increase in the June quarter, they, too, declined in Q3. That's just super performance, and it deserves commendation -- not a hold rating.

Valuation metrics:
K-Swiss' performance may be super, but its valuation remains unexceptional. The firm commands a trailing P/E ratio of just 14, and shares can still be had for 13 times trailing free cash flow. Barring some disastrous news tomorrow, in this Fool's view, this stock looks priced to move.

Fool contributorRich Smithdoes not own shares of K-Swiss.