Payless ShoeSource (NYSE:PSS) makes a living selling shoes for less, but the stock, up 19% at its high today, is the largest percentage gainer on the New York Stock Exchange. Shareholders are not saying "ah" as if they were happy customers slipping on a pair of good-fitting shoes. Unfortunately, the stock is unchanged from where it was trading a year ago and is 26% below its May high.

The company's third-quarter earnings report was what pleased investors today. Analysts expected the company to earn a nickel per share, but it surprised them by bringing home a dime. While a dime sounds like small change, it looks downright rich compared with last year's loss, which was three pennies.

The watchword at Payless is restructuring, which it calls strategic initiatives. The company is closing stores, cutting staff, and getting focused on making money. What a novel idea. This restructuring could cost $90 million this year -- with up to $46 million falling in the fourth quarter. Translation: Restructuring charges will produce a loss in that quarter. Enjoy your dime while it lasts.

Total debt and cash are about equal. Inventory is down -- as you would expect after store closings. Inventory per store decreased 8%, too. That's good news if same-store sales grow (indicating customers are getting what they want) and margins improve (meaning there were fewer discounts to get unwanted merchandise out the door).

Analysts expect the company to earn $0.62 a share in 2005 -- meaning the stock sells for 21 times forward earnings. That's rich, considering you can buy Wal-Mart (NYSE:WMT), the world largest retailer, for 21 times forward earnings, or Foot Locker (NYSE:FL) for 12 times 2005 earnings.

At current prices, and with the uncertainty of restructuring and new initiatives, Payless is too highly priced to be comfortably slipped into my portfolio.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.