You may have seen that Ameritrade (AMTD) TV commercial, where the daughter asks her father for $90 to buy a pair of jeans. After a little investigation, the father finds that all of his daughter's friends have these jeans. A light bulb goes off in the fathers head -- maybe this jean company is publicly traded. Sure enough, after accessing his Ameritrade account, he finds that the company is in fact publicly traded. The father proceeds to purchase some shares along with giving his daughter $90 for the jeans and the hot investment tip.

Now, this may be just a commercial skit exaggerating the simplicity of investment styles like that of Peter Lynch, but the markets actually provide us with real examples of companies where many of us would have loved to have been tipped off by someone asking us for money to buy some jeans. Let's take a look at one company that may have been the inspiration behind the commercial.

You think $90 for a pair of jeans is steep? Try $250, not to mention $350 for a jean skirt. These are the prices that True Religion (TRLG) is able to sell their jeans for, and sell them they do. The celebrity-endorsed, high-end apparel company has seen their quarterly revenue grow from $7.3M in Q3 2004 to $35M in Q3 2005, an increase of 380%. And as would be expected when selling jeans for $250, the company has very healthy gross margins that have averaged just over 50% for the last three quarters. True Religion is also quite efficient in translating those top-line numbers to the bottom-line income, as profit margins have steadily increased each quarter as well. In the most recently reported quarter (Q3 2005), the company had a net profit margin of 22% which equated to $0.33 per diluted share. The company distributes their product via an attractive distribution network which includes Saks (SKS), Nordstrom (JWN), Urban Outfitters (URBN), and recently opened their first store in December 2005. So what has all of this meant for shareholders? Since the end of the third quarter in 2004, shares are up an astounding 750%. Kind of makes me wish someone had asked me a year ago for $250 to buy some jeans.

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A major driver behind the success at True Religion has been, and this may surprise some, a denim bull market. Consumers in the last five years have been flocking to denim jeans, especially towards the premium brands. During this time, money has been made and lost depending on how much denim a retailer stocked. Denim specialists like American Eagle (AEOS) have seen strong revenue and share appreciation, while retailers like Gap (GPS) have struggled as they miss-fired on the denim trend. The average consumer now has nearly 9 pairs of jeans in their closet and many analysts figure that we are headed towards a denim bubble burst. If this was to materialize, and it is not a far stretch with the highly fickle fashion market, companies like True Religion would be hardest hit. Any investment in a company like True Religion is a bet on the continued consumer demand for denim.


The other major concern is that even if denim demand remains, True Religion jeans are nothing more than a fad. This is an all-too-valid concern, as nearly all revenue is driven from jean sales. If consumers choose to move away from the brand, the company will be hit hard. To combat this risk, the company needs to diversify their product lines and transform into more of a label instead of a jeans-only merchant. If the company can execute on this strategy, the merits of an investment in this company greatly improve.

So, if you're inclined to follow your everyday observations similar to Peter Lynch, maybe it's time to take note if your daughter keeps asking you for money for jeans -- it may be time to put some money into a company like True Religion. On the other hand, if you start to see her wearing khakis you might want to stay far away.