Let's start with the bad news in the most recent quarter from Stride Rite
Be that as it may, shares in the footwear company are up about 5% today, and there are a number of good reasons for the rise. First, because the company has been using its cash balances and free cash flow to buy up its shares, earnings per share were up 6.7% and the company backed up its earnings growth target for the year of 5 to 10% -- all of which is nice, but none of which really does it for me.
There is also the balance sheet flush with cash, a small dividend, and the upcoming acquisition of Hidden Gems selection Saucony
To me, the most important piece of information in the company's earnings press release was the performance of company-owned Children's Group stores and signs that the company's move to take Ked's upmarket and away from discounting is working fairly well. It's not a strategy without risk, but given that Stride Rite is up against Nike
Despite today's strong move, there may still be value in shares of Stride Rite. The company's trailing P/E of 19 in relation to its growth rate of 5-10% does look a bit pricey, but the large cash balances and strong free cash flow bring that multiple down to a more reasonable number on an enterprise value-to-free cash flow basis.
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