This spring, I was on a scuba diving trip with about 25 friends and acquaintances. The 12-year old son of one of my buddies was there, and I noticed that he always wore the brightest, most garish socks you could imagine, and in every hue under the sun. I've seen him a few times since then, and he's always sporting colorful crew-length socks, pulled all the way up. My generation (I'm 36) would have never worn our socks either pulled up all the way, or in these kinds of colors, especially not with shorts.

I just chalked it up to changing fashion trends, and didn't think anything else about it. And as an investor, that was dumb. It's these little trends that in many cases point to larger investing opportunities; Peter Lynch told us to look out for this stuff in One Up on Wall Street. It turns out that socks are a $3 billion business, and that trends like what I noticed (and then immediately forgot about) are already part of a $100 million business for Nike (NKE 0.66%). Let's take a closer look at what else is happening at Nike and other apparel companies. Is there really big growth in garish (and expensive) socks?

Socks are just a part of the story

Source: Nike 2013 Investor Meeting presentation

The up-to $35 per pair, the Nike Elite socks pictured above are just part of the company's aggressive growth targets in apparel. Management has a goal of making the $7.5 billion apparel segment reach $10 billion in sales by 2017. But the company's plans for its women's business is even more aggressive, with a goal to almost double sales from $4 billion to $7 billion in 2017. How will the company meet these big targets? From CEO Mark Parker:

"As the world becomes increasingly digital, we thrive because of our deep consumer connections ... There is more opportunity for Nike today, than at any point in our history. Over the next decade, we will see the world's middle class population grow by more than 1 billion consumers ... We have five very powerful, high-energy brands, each with its own meaningful connections to athletes and consumers, all over the world. And those connections provide us the insight we need to create the amazing products and experiences that span multiple categories, product types, and price points; what we call the 'Complete Offense.' " 

And this growth in the middle class, tied to the depth and breadth of the company's brands and deep ties to consumers, are powerful advantages for Nike. 

It's not just Nike that's growing in apparel and women's

Source: Under Armour 2013 Investor Presentation(opens PDF)

Competitor Under Armour (UAA) is also projecting big growth in its business over the next several years, targeting a more than doubling of its women's, youth, and footwear businesses by 2016. Growth in these segments is central to the company's goal to move from $2.2 billion in annual sales today to a whopping $4 billion in 2016, which is aggressive by any measure.

A near-doubling of total sales in three years may look extreme on the surface. However, the company has managed a CAGR (compounded annual growth rate) of 31% since 2005; maintaining that same rate for the next three years would net $4 billion in sales. 

Most to lose?
LuluLemon (LULU -0.03%) is probably beyond "see-thru gate," despite embarrassment for both the brand and many of its women customers, who may have shown a bit more of themselves due to the "...end product (having) an unacceptable level of sheerness." The result was Chief Product Officer Sheree Waterson leaving the organization. The company is still growing the top line, with sales in the most recent quarter up 22%, and comparable store sales up 8%, but earnings per-share were flat from the year-ago quarter. Toss in the planned departure of CEO Christine Day, and there's some concern that the high-end women's athletic clothier is losing both its edge and focus on its core customers. LuluLemon is still growing, but there are a lot of questions to be answered about the direction and future leadership going forward. 

Final thoughts
The active and sports apparel business is well-positioned to show strong growth over the next decade-plus, as the global economy improves and another billion consumers enter the middle class. Chances areall three of these strong players will be at the center of this trend. Under Armour and Nike are in great shape today. LuluLemon needs to get its leadership situation straight, and show investors that it can grow the bottom- and top-lines before I'd recommend taking a closer look.

What do you think? Share in the comments below.