Shoe retailer Finish Line (NASDAQ:FINL) reports earnings for the quarter ending Aug. 31, 2011, on Thursday after the market closes. The report will go a long way to confirm what has been a nice rally in the stock since the middle of August.

We are moving from speculation of a double-dip recession to the reality of earnings. So far the numbers have held up well. In the retail space, many companies have been beaten Wall Street estimates. Another name in the shoe space, DSW (NYSE:DSW) recently reported strong results that included raised guidance for the remainder of the year.

That news should portend good results for Finish Line. On the flip side, the commerce department reported sluggish back-to-school sales that might have a negative impact on Finish Line. The winds are blowing crossways — be careful out there.

Finish Line has matched Wall Street estimates in the past two quarters:

While that performance is to be commended, there does not appear to be upside acceleration of profit growth. Simply matching the number might not cut it for investors when the company reports results for the current period. The average Wall Street estimate for the Aug. 31 quarter is 38 cents per share. That is a penny higher than where estimates stood 90 days ago.

For the full year ending Feb. 28, 2012 estimates have been creeping higher. Currently, Wall Street is looking for a profit of $1.56 per share. Ninety days ago the annual estimate was at $1.52 per share. In the following year, the profit estimate is $1.70 per share or 9% higher. At current prices, Finish Line trades for 12.5 times current fiscal-year estimated earnings.

During the past 12 months, Finish Line has gained a very impressive 23%:

On Tuesday, shares of Finish Line plunged more than 6% on no particular news. Shares opened slightly lower but drifted down throughout the day. When a stock moves like this in front of an earnings report, investors should be cautious. “Does someone know something?” is what I would ask.

Operating performance at the company has been nothing to write home about. Shares up 23% over the past 12 months would imply a stronger result. Wall Street appears to be unmoved. Analyst estimates are only slightly higher over the last three months.

With share price gains including Tuesday’s decline, Finish Line trades for a premium valuation as compared to expected growth. A very strong report is needed to support that price. Back-to-school sales look to be unimpressive. We all keep waiting for companies to show cracks with earnings or guidance. Could this be the quarter we see reductions in future expectations?

I don’t like the valuation heading into this report. For that reason — and that reason alone — I would sit on the sideline with this one.