Payless ShoeSource (NYSE:PSS) has had a stellar run lately, more than doubling its stock price from a low of $9 in late 2004. Since then, a new management team has cut the fat, streamlined operations, and subsequently revitalized margins and earnings. But the future direction of the stock price will depend on whether Payless has entered a new paradigm of consistent growth in its 4,600-store base, or whether it has already experienced most of the recent recovery.

Year-end earnings results, released Feb. 28, didn't shed much light on which way the recovery will go. The stock, however, fell by 6% on the day of the release, a result of some profit-taking activity.

For the most recent fourth quarter, Payless reported a loss of $0.08 per share. Results for the quarter had a number of moving parts, including some charges and some increased taxes. And because Q4 2004 also had its share of charges, it's tough to make a year-over-year comparison.

Results for the fiscal year were more straightforward. EPS came in at $0.98, giving Payless its first profit in the past three fiscal years. Results have been trending in this direction since 2004, when a new management team led by Steven Douglass (and now Matt Rubel, who became CEO in July 2005) closed about 260 underperforming stores, cut the headcount, and reduced inventories.

So where do we go from here? Bulls are excited about a revitalized company; they expect Payless to continue to ramp sales, attract new customers with better and more fashionable brands, and continue to improve margins. They also regarded management's announcement that it will no longer provide monthly comps as indicative of a longer-term focus on operations. Bears, on the other hand, are concerned that the stock has run up too quickly; they fear it will lose its price-sensitive constituency as the company pursues more fashion offerings.

Before we choose a side, let's take a long-term view and see what type of growth is baked into the stock price.

One of the Fool's maxims for successful investing is to look for a strong historical track record. Prior to Payless's recent recovery, the company's past had resembled a smelly old pair of sneakers. But the company reached an inflection point in late 2004, thanks to the new management team and the revitalized operations that came along with it. Have we reached a point where earnings growth will consistently be 10%-15%?

Based on my calculations using next year's expected earnings, Payless would have to grow at about 12% per year for 10 straight years to justify its current stock price. My model assumes a cost of capital of 14%, and terminal growth of 3% after the 10-year period. Based on the stock's current price ($21.72 as of market close on Thursday) and consensus EPS estimates of $1.26 for FY 07, the company is trading at a P/E of 18. In comparison, competitor Foot Locker (NYSE:FL) trades at 13 times forward earnings. In other words, Payless is being valued as a consistent, high-growth retailer.

Don't get me wrong -- Payless is the largest shoe retailer, and if it consistently hits the right fashion trends, it could turn out to be the next Coach. But without a consistent three- to five-year track record of doing so, it's just too hard to tell at this point. Given the optimistic growth assumptions already priced into the stock, I think Foolish investors should only window-shop for shares of Payless and save their funds for a brand new pair of shoes.

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Ryan Fuhrmann has no financial interest in any stocks mentioned (that means he's neither long nor short the shares). Feel free to email him for feedback on this article or to discuss Payless further.