Jumping For Joe’s

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JOEZ_LogoIf you’re a so-called “average guy,” you probably have a favorite pair of blue jeans. Perhaps you’ve owned that pair for years upon years. Those jeans are weathered and worn, but chances are you’ve broken them in to the point that they are now really comfortable and you shudder at the thought of parting with these jeans.

$100 Jeans…Are You Serious?

Beyond all that, it’s probably safe to say you didn’t pay much for those jeans. Maybe $20 or $30 for the pair. In other words, the thought of paying well over $100 for a pair of jeans may seem like sacrilege and that’s OK. However, there is a legitimate market for pricey jeans in the U.S. and across the world and that market has booming for years now.

Fortunately, there are ways for investors to capitalize on consumers’ increasing willingness to pay up for designer jeans. There is an analogy investors ought to keep in mind regarding the stocks of companies that make high-end jeans: You don’t need to smoke to make money with tobacco stocks. Likewise, one need not spend a lot of money on jeans to reap the rewards of what is one of the fastest-growing fashion trends in the world.

That is just one reason to consider Joe’s Jeans (NASDAQ: JOEZ), the premier micro-cap name of the expensive blue jeans universe. California-based Joe’s Jeans has been in business since 2001, a history that speaks to the company’s fortuitous timing in terms of bring its wares to market just as consumers were starting to embrace the idea of $100 (or more) jeans.

Before you rush into shares of Joe’s, it pays to look at the history of some noteworthy apparel stocks that have spent time in the micro-cap universe before graduating to bigger and better things. Not long after becoming a public company in 2006, American Apparel (AMEX: APP), saw its shares nearly double by mid-2007.

A 17,360% Increase Shows the Potential

Alright, so American Apparel may not be the best example because the stock has had some issues over the past few years and now trades below $1. The more relevant comparison for Joe’s is True Religion (NASDAQ: TRLG), a company that, you guessed it, makes expensive jeans. Since its IPO in April 2003, True Religion has surged almost 17,360%.

That’s right.

No need for a double take. Shares of True Religion have jumped 17,360% since April 2003. Over the same time, Apple (NASDAQ: AAPL) is up “just” 5,500%.

JOEZ Has Doubled in 2012…and the Sky Could be the Limit

Clearly, no one can guarantee that a similar fate awaits Joe’s Jeans. However, investors cannot ignore the fact that the stock has doubled in 2012. Those not familiar with the company should also note the company does a lot more than just make jeans for women. Joe’s makes jeans for joes (or men) and for kids. Not to mention, Joe’s makes tops, tees, sweaters, dress, skirts, jackets, shorts, accessories and an array of other high-end casual apparel.

Joe’s is also diligently working to increase international awareness of its growing brand. In June, the company entered into a new multi-year international distribution arrangement with Advanced Retail for France. That agreement will supplement Joe’s existing distributors in the United Kingdom, Germany, Italy and Russia.

Armani, Bulgari, Tiffany, Versace and Joe’s Jeans

Additionally, Joe’s announced it will open a new boutique in South Coast Plaza, an internally renowned mall in Orange County, California. Home to Armani, Bulgari, Tiffany and Versace boutiques, South Coast Plaza attracts shoppers from all over the world. This fact should not be understated as it pertains to Joe’s Jeans because it implies global shoppers with a flair for paying up for brand names will have the chance to do just that because a new Joe’s boutique awaits them in Southern California.

More importantly, Joe’s is showing it has growth stock credentials. The company’s first-quarter profit jumped 26% while sales increased 23%. Same-store sales surged 22% while operating income increased 244%. Those numbers could easily increase in the second quarter, which will be the first full quarter with the benefit of Joe’s Else line. That line debuted in Macy’s (NYSE: M) stores in February and immediately accounted for $1.5 million in sales during that month.

Trading at 21 times forward earnings, Joe’s isn’t exactly cheap, but this is a growth stock. Assuming earnings continue growing over the next several quarters in the area of 20%-25%, then 21 times forward earnings is actually quite reasonable.

Bottom Line: Joe’s Jeans is arguably a $2 – $3 stock… currently trading barely over $1.

Mike Casson
Executive Editor
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