StockTips: TRLG

Those who know me also know about how fervent of a True Religion supporter I've been. The company has been good to me, with over 85% in realied returns. Here is why TRLG is especially sexy: the market doesn't get it. Look at all the street articles - most question why people would buy a pair of $200+ jeans. Fortunately, I've had enough experience in fashion to know that you can't put a price on sexy, and TRLG, like Justin Timberlake, is bringing SexyBack. True Religion is premium denim's golden calf and isn't going away anytime soon based on that alone.

Still critics chirp - but aren't premium jeans just a fad? Aren't all denim firms doomed to the fate of Jordache? Certainly kids will be rocking jeans for all time, but say that all of a sudden distressed denim goes the way of the dodo. Is TRLG doomed? Not at all.

Enter the firm's new President: Mike Buckley, the man who took Diesel and transformed it from a mediocre denim designer into a full-service "lifestyle brand" with stores all over the world. He's doing the exact same thing to True Religion with the introduction of a more diversified product range and retail stores in all the trendiest spots, with more to come. The brand now has ever increasing exposure and market share.

This isn’t being reflected in the stock price, however, so TRLG has finally publicly announced that they are looking for a buyer, and when the almighty Goldman is willing to represent them you better believe the deal will go through with a good premium.

So what should you do to take advantage of TRLG? Here are two simple strategies:

1. Buy and hold – enter anywhere below 19 and you will see positive returns. The firm won’t sell for anything below 24, and my guess is closer to 28 – the only question is when and to whom. Obviously a strategic buyer will bring the premium up even higher. Otherwise, a financial buyer is a likely candidate. I pitched the idea to Mr. Kravis in January, and I sincerely hope he takes it to heart (and if he does I hope there’s a commission for me in the form of a job offer from KKR). Bear Stearns’ merchant banking group owns Seven Jeans and a few other smaller apparel firms, so there could certainly be consolidation if they were to add TRLG into the mix.
2. Long + SAR – notice that the stock tends to go up, then back down. This is because of all the shorts on TRLG that always bite whenever it goes past 20. Use this to your advantage. Enter gradually from 18 down then ride it up to 20. Now stop and reverse into a short and ride the stock back down to about 17 before covering and going to long. TRLG tends to float between 16 and 21, so don’t get too greedy and you will see excellent returns. This is the strategy I’ve been using and it has worked wonderfully. You just need confidence in you strategy and patience.

Update: TRLG just announced they appointment of Zihaad Wells as the new Design Director. This guy created Levi's Red and Vintage brands. He is perfect for TRLG in terms of aesthetic direction: clean and sexy with a hint of flair and tasteful accents. Note that this happened just as the stock was about to start heading down. My guess is that the shorts will be weary, but not too much. In any case since banking means I can't day-trade I am backing out of my short before market open tomorrow and will re-purchase the stock when I see it has leveled/reversed.