Is True Religion’s Stock Still Cool Enough to Buy Now?

With shares of True Religion (NASDAQ:TRLG) trading at around $26.30 is TRLG an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

If you invested in True Religion when it went public in 2003, then you’re probably a very happy investor at the moment. Since its IPO, True Religion is up over 10,000%. That’s what happens when Jennifer Lopez and Kate Hudson are spotted wearing a new company’s apparel. Even without stars strutting their stuff in sexy and comfortable True Religion clothing, this company would have performed well.

CEO Jeffrey Lubell had experience in textiles, a clear-cut vision, and he’s known to be a great salesman. His expertise are in the area of men’s apparel, but True Religion has been successful with everything from men’s pants to women’s t-shirts. This company has a global presence and what some people refer to as a cult following.

Some of the passion and excitement for True Religion has faded over the past two years due to missteps. Actually, while the stock’s ascent since its IPO has been incredible, the past five years paint a different picture.

Imagine attempting to climb a mountain in the rain while wearing sneakers. Every time you gain some ground, you slip and fall back down to your original starting point. That’s what is has been like for investors of True Religion’s over the past five years.

On the other hand, this stock pays a 3.10% dividend. Being paid to wait has never been a bad investment. Another positive sign is a Forward P/E of 13.07. There is yet another huge selling point, which will be covered below.

E = Debt to Equity Ratio is Strong

True Religion has a debt-to-equity ratio of 0.00. The largest apparel company in the world, V.F. Corporation (NYSE:VFC) has a debt-to-equity ratio of .54. Even more impressive for True Religion is that it has $168.70 million in cash and no debt whereas V.F. Corporation has $304.60 million in cash and $2.57 billion in debt.

T = Technicals on the Stock Chart Are Unexceptional  

True Religion has had its fair share of ups and downs over the past few years…

Over the past month, True Religion is up 1.31% while the S&P 500 is up .59%. Year-to-date, True Religion is down 23.03% while the S&P 500 is up 14.94%. Over the past calendar year, True Religion is down 24.39% while the S&P 500 is up 21.16%. Over the past three years, True Religion is up 44.33% while the S&P 500 is up 38.19%.

At $26.30, True Religion is trading higher than its 50-day SMA of $24.45. It’s trading higher than its 100-day SMA of $24.23. And it’s trading higher than its 200-day SMA of $25.86. While these numbers seem to indicate a nice stock to trade, trading this stock (opposed to investing in it) can be very risky. The swings are extremely violent. They shouldn’t even be referred to as swings. Pitfalls and peaks would be a better description.    

E = Earnings Are Strong and Revenue Is Very Impressive

Since 2007, True Religion has increased its revenue every year. It’s difficult to find such consistency.

2007

2008

2009

2010

2011

Revenue ($)in millions

173.26

270

311

363.71

419.80

Diluted EPS ($)

1.16

1.83

1.92

1.75

1.80

 

Quarterly revenue growth and earnings have also been solid.

     9/2011      12/2011      3/2012      6/2012      9/2012
Revenue ($)in millions

108.36

119.41

106.78

104.91

118.55

Diluted EPS ($)

.48

-.58

.41

.39

.49

 

T = Trends Do Not Completely Support the Industry

The approaching holidays are a positive for a unique retailer like True Religion. This company’s uniqueness is what has led to its rapid growth. Quality gift givers will always hunt for something that will stand out and be remembered and appreciated. The big negative is that more women are choosing dresses over denim right now. This trend is even hurting V.F. Corporation.

True Religion was also late to the party with skinny jeans. Jeffrey Lubell thought it was just a fad and didn’t want to jump in. While it might be difficult to see right now, he’s probably correct. Skinny jeans seem to be a good fit for those who are suffering from an identity crisis. While there might be a market there, it won’t last long. 

If you visit True Religion’s website, you will see that sexy and comfortable is the most common theme, and this trend is always hot. There is also a Holiday Collection. If you would like first-hand proof of the sexy and comfortable look, then be sure to visit the Get Cozy line.

Conclusion

True Religion is expecting to increase their annual revenue once again. The expectation is $461 million. That’s a good sign, but there is something even more important at play here, which is private equity. It’s no secret that Lubbell once toyed with the idea of selling True Religion. Therefore, it’s very possible he will toy with that idea again. With a stellar balance sheet and an exceptional brand name, True Religion would definitely draw interest from potential suitors.

Even if there is no sale, True Religion has a bright future. There might have been some mistakes in the recent past, but that’s always going to happen with risk-takers like Lubell. Over the long haul, the majority of those risks will pay off.

Based on all the information above, True Religion is a long-term OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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