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.