Thursday, April 28, 2011

True Religion (TRLG) Explodes (In a Good Way)!

True Religion (Ticker: TRLG) released their quarterly earnings today after market close.  You can read its press release for the details.  It beat estimates by 38%!  Are you kidding!?!  Analysts estimated that it would earn $0.26/share, but it ended up making $0.36/share.  The quarter was really a blowout...just incredible!

Management had set up the business for success.  It opened up new stores and invested in advertising for their web store.  This was done because this was their highest margin segment (gross margins of 72.2%!), US Consumer Direct.  Conversely, they began to scale down the lowest margin segment, US Wholesale.  We can now see the fruits of their work.

Going forward, I'm feeling pretty good about the stock.  I believe a P/E ratio of 20 or even 30 can be sustained by the current growth of the company.  I will start to scale out of the stock as it continues to rise into the $30s, and then buy back at lower prices.  With its volatile nature, I would not be surprised if it were to come back to the mid-to-high $20s at some point.

One more thing I wanted to show you was a tool called Google Insights.  I use it as a tool to predict the current quarter's performance of companies which sell consumer products.  When you enter a search term, Google returns a chart that shows the search volume of that particular term.  Since True Religion is a term that would be searched by the masses, it would give a fairly good indication of how well its business is.  I've embedded a chart of the search volume for the term "true religion" below.  If you look at the history of True Religion's earnings, there is some correlation between it and this chart below.   Try it out!  See what you get when you type "iphone", "android", and "garmin".  Chances are, the company's stock performance has some correlation with the search volume of its products!

Just in case you're wondering why I wouldn't use this tool for other industries...it's quite simple.  The number of searches don't necessarily correlate with its sales.  For example, I work with lasers at work.  I wouldn't use this tool to predict the performance of the laser maker, IPG (Ticker: IPGP), because the number of searches don't really correlate with its sales.  If you're curious, check it out.  The Google Insights chart for "IPG" does not correlate at all with its earnings or stock price.  However, for consumer products, if the masses are searching for a product, it's likely that they are going to buy that product.  Not so much for other industries.