Stride Rite: Movin' On Up

Let's start with the bad news in the most recent quarter from Stride Rite (NYSE:SRR). Compared with last year, Stride Rite notched sales that were 3% lower and had an operating income that was 4% lower, as well as a net income that was $11.8 million vs. last year's $11.9 million.

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 (NASDAQ:SCNYA) (NASDAQ:SCNYB) to look forward to. But all of these are old news.

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 (NYSE:NKE), Reebok (NYSE:RBK), and other footwear specialists for attention, I think it's a good strategy to get away from portraying the brand as a discount line.

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.

For more footwear-related Foolishness, check out:

• Saucony's Moment in the Spotlight
• Stride Rite Tries to Gain Traction

Nathan Parmelee has no financial position in any of the companies mentioned. You can view his profile here. The Motley Fool has an iron-clad disclosure policy.