Name That Chart - True Religion Apparel
Stocks are rallying this morning as the world breaths a sigh of relief over two key developments. First, we found out this morning that American International Group (NYSE: AIG) will be selling its Asian life insurance business for $35.5 billion. The troubled insurer needs to liquidate assets to pay back the U.S. government which came to its rescue in 2008. Second, another bailout package, this time for the troubled country of Greece, is helping world markets rally. European nations are set to announce a potential solution to the country's debt problems whereby European state-owned banks would buy Greek government bonds.
Sound familiar? It appears the new solution to over-burdened institutions is now a government sponsored bailout package. And judging by the market's reaction this morning, it appears investors have lost the bailout blues.
***I wrote last week that I'm getting increasingly bullish on small-caps given their leadership in the market. And today we're seeing the Russell 2000 small-cap index rally 1.5% higher to lead the major U.S. indices. Our Small Cap Investor PRO portfolio is moving sharply higher spurred by foreign markets like China's Shanghai Index which rose more than 1% in Monday's session.
Also today, commodity prices, mostly metals, are getting a boost from an earthquake in South America over the weekend. The epicenter of the quake was near Chile, which produces a quarter of the world's copper. Early reports estimate that one fifth of the country's mining production will be on hold following the earthquake. This is a terrible tragedy for the country, although I have no doubt the Chileans will bounce back even stronger. The country has a history of recovering from devastating earthquakes and there is no reason to believe the people won't do the same once again.
***Last week I asked you to submit answers for the name of a company represented by the stock chart below. We received just two correct responses to the company, which was True Religion Apparel (Nasdaq: TRLG).
I first recommended True Religion Apparel to subscribers on August 11, 2004 when it was trading at $1.13. When I eventually sold it on September 5, 2008 the stock was trading at $26.19 and subscribers had locked in a very impressive gain of 2,218%!
In my Small Cap Investor PRO advisory service, I'm constantly on the lookout for the next company that will earn investors massive gains, just like I did with True Religion. In fact, in the current Small Cap Investor PRO portfolio subscribers are already sitting on gains like 93%, 53%, and 30%. To find out more about these companies and sign up for a risk-free trial subscription click here today!
Even though I no longer own shares of True Religion in my model portfolio, it's sometimes fun to revisit previous winners and see how they're doing. Last Thursday True Religion Apparel reported fourth quarter earnings per share results that came in two cents ahead of analyst expectations. The news shot the stock higher by over 18% intra-day before it closed at $24.08 for a healthy 16% one day gain. What's more, the performance led many analysts to raise their price target on shares. Right now, the consensus analyst share price target for TRLG is $30.00, or 25% above the current share price.
So the question for investors is: is this price target justified? The short answer is yes, the stock is likely to rally higher from its Friday close. This company, which has grown into an international retailer of high-end quality apparel, has demonstrated an ability to grow through both strong, and challenging economic environments.
Between 2006 and 2009, True Religion has averaged 31.4% revenue growth and 21% earnings per share growth. While growth has slowed from 2008 levels, a year where sales and earnings per share grew by 56% and 41%, respectively, the company is likely to be a strong performer in the future. Analysts expect sales growth to average 15% over the next two years and earnings per share to grow by an average of 12%. Of course, the company beat expectations in the last quarter by 7.3%, and has a record of beating estimates. So I wouldn't be surprised if the company continues to exceed expectations.
In addition to a clean balance sheet with no long-term debt, True Religion Apparel has a solid track record of producing positive cash flows. This is the result of attractive margins for the consumer goods retailer. In fact, trailing-twelve month operating and profit margins are and impressive 25% and 16%, respectively, no doubt buoyed by the high price products the company sells.
True Religion Apparel is a classic example of a company that experienced huge growth and massive share price appreciation, during its run from a micro-cap company to a small-cap company. I love these success stories, and expect that this company will continue its strong performance. While it could be some time before it ultimately breaks the $1 billion market-cap mark, I believe a $30 price target on shares is reasonable in the short-term.
***Of course, many of you are wondering who the winners to the drawing are! I'm pleased to announce that the winners to last week's 'Name That Chart' question were Adarsh D. and Elmer B. Both of these astute readers correctly identified the chart at that of True Religion Apparel. What's more, both Adarsh and Elmer will be receiving an autographed copy of my book, The Small Cap Investor. Nice work!
I'm still reviewing the requests that came in last week and will cover another stock this week. Keep up the good work and keep sending me tickers of companies you like. I'll review them in a future issue. My address is: editorial@smallcapinvestor.com
