Parlux Fragrances (NASDAQ:PARL) has returned nearly 300% to shareholders since it first appeared as a Motley Fool Hidden Gems Watch List selection in the April 2004 issue. That makes it a four-bagger in just 19 months.

Peruse the latest quarterly report and you'll see why. It's the same ol' thing with Parlux -- with sales rising 73%, the company had another huge quarter. Skeptical about how that translates to the bottom line? Profits are up 87% from a year ago, and that's after a huge advertising push that has taken expenses to record levels in dollar terms. Parlux has also once again backed its sales estimates of around $200 million -- this from a company you could have owned in whole two years ago for $30 million.

Parlux's past
Back then, Parlux was trading below its tangible book value -- which would have made Warren Buffett's mentor Ben Graham smile. However, that's not the only thing that separates the 2003 Parlux from the 2005 model. Back then, it was also a perfume company.

What was once a value-play perfume company is now a "Diva, Inc." growth story. The Parlux of old manufactured perfumes for brands like Perry Ellis (NASDAQ:PERY) and Fed Hayman, but last I checked those two names did not have amateur videos trading around the Internet at the speed of trite.

Parlux's present
Parlux's aim today is to find the diva du jour, and right now that's Paris Hilton. If you think Parlux is still aiming to be a perfume company, its financial statements will tell you otherwise. Parlux now holds the exclusive worldwide license agreements to develop, manufacture, and market a line of Paris Hilton cosmetics, handbags, purses, wallets, small leather goods, and, as of January, $100,000 watches. Makes you wonder whether the P-A-R-L ticker symbol is just a lucky coincidence or the signs of a CEO who could look five years into the future. At the rate things are going, shareholders should be awaiting the day their company decides to change its name to Paris Hilton, Inc.

If you're worried about how long the appeal of someone who is "famous for being famous" will last, you aren't alone. That's why Parlux has already signed exclusive deals with fashion brand Guess? (NYSE:GES), as well as the next diva du jour, tennis starlet Maria Sharapova, who already has endorsement deals with brand-name companies like Nike (NYSE:NKE) and Motorola (NYSE:MOT).

Possibly more interesting (and controversial) is the company's new license agreement with children's toy brand Gund to start manufacturing children's fragrances under the "babyGund" name. This will help it diversify away from the hotel heiress.

Possible pitfalls
If you're thinking about plunking down some of your hard-earned cash on the back of Paris Hilton, you may want to consider the risks -- and there are plenty. I've never held stock in a cosmetics or fashion company, and until I start getting compliments for my dashing sense of style, I don't plan to. Parlux's financial statements detail why such companies can be more of a bet than an investment. Consider this gem, pulled from the latest 10-K filing:

The beauty industry in general is highly competitive and consumer preferences often change rapidly. To counter the effect of lower department store sales, companies are required to introduce new products more quickly, which requires additional spending for development and advertising and promotional expenses.

The company lawyers then practically predict the company's future demise:

In addition, a number of the new launches are with celebrities (either entertainers or athletes), which require substantial royalty commitments and whose careers and/or appeal could change drastically, both positively and negatively, based on a single event. We believe these trends will continue. If one or more of our new product introductions would be unsuccessful, or the appeal of the celebrity would diminish, it could result in a substantial reduction in profitability and operating cash flows.

Alongside these risks, ownership in Parlux will net you a business partner named Ilia Lekach. Lekach thinks of himself as a pretty good businessman, and he lets shareholders know this by awarding himself questionably excessive stock option grants, such as the 420,000 shares he exercised in March 2004 at the bargain-basement price of $2 per share (the stock was then trading at $11.50 per share). Those stock option grants, by the way, aren't required to be expensed by the company, and getting the CEO to expense his options is -- literally -- taking an act of Congress.

In addition to naming himself president, chairman, and CEO of Parlux (does he wash the windows, too?), Lekach has named himself chairman and controlling shareholder of other small companies (like eComVentures (NASDAQ:ECMV)) that have questionable business dealings with Parlux. Fool Bill Mann first pointed that out back in mid-2003. Check eCom's financial statements and you'll find the hundreds of thousands of stock options that Lekach has granted himself. eCom, it turns out, owns retail perfume chain Perfumania, which of course lists Parlux Fragrances as one of its biggest customers. Bill noted that Perfumania represented 17% of Parlux's revenues. That number doubled (to 35%) for the last fiscal year, which ended in March 2005.

The good news, however, is that while the amount of trade receivables Parlux is showing on its financial statements has remained roughly the same, the amount coming from related companies (like eCom) has gone down. Parlux decreased the number of trade receivable accounts from related parties on its books from 99 in FY 2004 to 59 for FY 2005, and also decreased the dollar amount of trade receivables from related parties by almost $3 million (a more than 25% decrease since last year). However, questionable business dealings -- such as lending money to related companies -- should throw up huge red flags for the would-be investor, and these numbers should be watched closely.

Parlux's future
The short-term outlook looks bright for Parlux. Management has once again backed its sales estimates of around $200 million for the fiscal year ending March 2006 -- a 100% increase over the prior year, which when combined with quickly increasing profit margins leaves financial results smelling pretty sweet. Even with the company's generous stock option grants (no, it still hasn't slowed that down), Parlux is still looking to report earnings of around $2 per share, an increase of 96% over the last fiscal year -- not bad for a company currently trading at a price-to-earnings ratio (P/E) of 23.

While the lights are shining bright on Paris today, if you decide to invest, tread wearily, dear Fool. For now, Parlux is on a roll, but whether its success will continue or fade with the fad of Paris Hilton remains to be seen.

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Rick Casterline frequents the Foolish discussion boards, where he is known as WBuffettJr to his online pals. He does not own shares in any company mentioned in this article, although he may have dated Paris Hilton in the past. The Fool has a disclosure policy.