Is Google "Darth Vader"?

Google Inc. (GOOG) shares soared past $500 USD for the first time the day before...I pondered, how big can Google get before we realize that it is as villianous as Vader....

I admire Google, they turned search into a four letter word i.e. "a dime" without being a pain. Internet advertising is no more a bothersome popup, or a flashing image on a website, an unobtrusive experience for the surfing masses and free cashflow to Google. Vader figured out a way to monetize billions of searches without being intrusive while making us yell "I Googled it!".

Google collects an estimated 25% of all U.S. internet ad revenue and is encroaching traditional media such as newspaper and radio. With the acquisition of YouTube, and the whole advertising/media tilt, I feel the company will start to face its share of public relation challenges, despite it's "do no evil" mantra.

Growth potential is fantastic, however, such metrics seem to be priced into the companies current valuation. With a Price/Cashflow North of 86 and a Price/Sales of approximately 25, I think it is time for the "Revenge of the Sith". In this case, Mr. Market.

As the old maxim goes, anything that is too good to be true is, "Too good to be true!"

So, if you hear your favorite analyst on a TV channel such as CNBC, etc. touting "Vader" as a must have, I would say "caveat emptor".

IMHO, Google's business is progressing at a gallop, but it's stock price seems to be traveling at "Mach" speed. When stock prices outpace the business, you have to understand that the party cannot last for too long and that it is time to take some "moolah" off the table.

My "True Religion" is Capitalism

Ya, that's right. It is not Judaism, Hinduism, or anything more exotic. It is old-fashioned, conservative, "true religion" i.e. "Capitalism" .

When my "true religion" does not live up to its expectations, I have no choice but to renounce and convert to agnosticism and not some other form of "Opium for the masses!".

Today "True Religion" the ecstasy (E) of the town, gave back $4.2 in after-hours (approximately 22% down). When the street expects 44 cents per share and the company can only muster an ice-cold, thawing 35 cents a share, you are not going to get converts, but a bunch of agnostics.

Stocks such as True Religion (TRLG) thrive on growth, their current price is a mere reflection of discounted future cash-flows. When such growth expectations fall short by a wide margin, nasty holes in the denim are the only things that remain in vogue. My friend, that in a nutshell is Wall Street.

True Religion a Los Angeles based company, founded by the husband and wife pair of Jeffrey and Ken Lubell was based on their love for music (rock, hip-hop & R&B) that translated to denim apparel; They pay attention to fashion-forward consumers and deliver innovative , hand-sanded washes, and trendsetting lines. I personally think their Jeans are amazing! However, some friends of mine say "So what, it's just a denim!" I say, your choice of denim can be a rubberstamp for life! I am exaggerating! However, I think, I make my point with some!

Not just investors, Heidi Klum, Usher, and the cast of the Desperate Housewives subscribe to that thought process. In addition to celebrities, some of the world's well known retailers such as Barney's of NY, Harrod's of UK, L'eclaireur of France, and B'2ND of Japan, etc. have decided to extend shelf space.

Although, I like their Jeans, cerebral me says that it is really hard for companies to sustain fashion statements over extended periods of time. The problem is that fashions blow hot and blow cold, and for companies to keep pace with the vagaries of a consumer is very difficult. As they say "One Robin doesn't make a spring".

I think True Religion shares have gotten somewhat ahead of the business and the street is starting to sober up. In my opinion this will be a repeat story with many of the specialty retailers in the New Year. As the US consumer comes to grip with more mundane issues such as monthly mortgage payments, credit card bills, and shopping at Costco, the importance of making a fashion statement with True Religion will become somewhat less significant.

It is high time that prudent investors start taking taking some money off the red-hot specialty retail sector table.

Guess which stock made u some mad money?

I hope you guessed right! It is "Guess"!

GES for you home gamers. This stock is on a tear since 2003. Guess seems to be the "True Religion" of it's avid shareholders, rising from a measly $3 per share in 2003 to its current lofty $62 per share price. I thought specialty retailer's stocks (i.e. Guess GES, True Religion TRLG, etc.) were as washed-up as their jeans but I "Guess" I have been proven wrong.

At this point, valuations on Guess seem to be stretched farther than the rubber band on my Sunday New York Times. With a Price/Cash Flow of around 20, I think we are close to "yield point". I have to admit the annual growh in revenue, eps, operating margin for Guess are not shabby, 31% rev. growth, 120% eps. growth, 7.8% operating margin growth respectively. These growth numbers seem to have been adequately priced into the stock at this point.

On October 14th in my article (Stocks Climb Again), I had mentioned that Guess was starting to look overvalued at $56 per share, my opinion at $62 per share is not any different. When you see stocks generating 15% returns in a mere month, you know that the "guess" theory is in vogue rather than plain old common sense. Wall Street is following Pascal's statement "The heart has it's reason, that reason knows not of".

I do like Guess' growth/strategy, higher-margin sales in Europe, market penetration in Germany, Asia, etc. However, I am starting to wonder if the abnormal returns in the stock price can also be attributed to a huge growth in the short-position of the stock over the last year. Are we starting to look at the "Pigeon Hole" principle in action here? Pigeons can only be happy as long as there are enough pigeon holes. I might add, it gets a bit crowded otherwise.

An old adage I would consider worthy of the current environment is "Anything too fashionable must be close to obsolescence!"

Disclosure: I don't have any position in Guess (GES) nor True Religion (TRLG). However, I am considering buying some puts on Guess (GES) if it goes any higher.