It's been just slightly more than a year since I introduced my list of 10 small-cap companies to rule them all. True Religion Apparel
Company |
True Religion Apparel |
Performance Since Pick |
11% |
Price/Book |
2.22 |
Forward P/E |
11.7 |
Source: Yahoo! Finance.
Where it's been
This is actually a bittersweet 11% gain, as True Religion was up nearly 50% just two months ago before its fourth-quarter report wiped out more than one-quarter of its value. At the heart of True Religion's earnings shortfall was weakness in the company's wholesale division.
But as I mentioned in February, the wholesale weakness is one figure you can almost completely ignore. Since 2010, True Religion has reduced its reliance on the wholesale business from 29% of its sales to just 18%. Instead, the company is targeting expansion in its bricks-and-mortar stores and its high-margin online segment. Both its stores and Web division offer better margins than the wholesale segment, so I'd hardly fret over wholesale segment weakness.
Where it's headed
March same-store sales at traditional mall-based retailers have been off the charts considering that many consumers had a hard time getting to the mall last year to make purchases because of the nasty weather. Macy's
What really matters for True Religion is that it can continue to pass along price hikes to consumers. Cotton costs play a much larger role in True Religion's bottom line than most retailers, so be sure to watch swings in the commodity price with a careful eye if you're considering investing. Luckily for shareholders, the True Religion name is becoming synonymous with high-end luxury denim, and consumers are still paying in excess of $300 for its products.
I think investors have also overlooked True Religion's strong cash position. With no debt and $200 million in cash, it can use its clout and brand recognition to crush smaller rivals like Joe's Jeans
Foolish roundup
To assume the sun has set on True Religion's glory days after one poor quarter and an earnings forecast calling for EPS growth of 4% to 7% is a bit premature. The company has laid the groundwork for its higher-margin bricks-and-mortar stores and has more than enough cash to move its business forward. Despite being down on this CAPScall, I am betting on growth over the long term.
What's your take on True Religion Apparel: Is success in this company's jeans, or have its better days come and gone? Share your thoughts in the comments section below.
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