Since last few weeks American Apparel Inc. (NYSEMKT: APP) is in news and one can see average trading volume is in the range of ~5 million!!
There is a lot going on behind the scene. One can see -20% to +20 fluctuations in stock price just because of some market news. Last week board of APP fired its founder and CEO. There is certainly much going on in this company. Let’s see what it means from stock perspective.
In Dec 2007, APP stock was at its peak trading at ~ US $15. Since Jan 2008, it started declining and never got a chance to cross even $5 mark. APP went into loss and to keep running the company company had to take debt. Some long term debts are going to mature very soon and in fact one lender Lion’s capital gave a kind of hard notice to repay back. Due to its brand and good will, APP attracted some foreign investors who trusted in APP brand and invested their capital in the company. Personally I think, APP brand is unique and I find APP has a quality as compared to its competitors. I like the designer cloths by APP and most importantly APP supports “no sweat shop”. Ethically APP is doing right. What is the point to support the system where workers are exploited whether it is in America or other pat of the world. Just think about it? Just wear the shoe of a worker who even does not get 50 cents a day? Is it ethical?
However many clothing companies which include very large corporations do not think this way. I think they are promoting the system where wealthy individuals exploit cheap labor in Asian countries. Also, one can see the quality of cloths manufactured in those sweat shops. These cloths do not have any quality! these cloths are like use and throw. On one wash, their color fades away, cloths looks too dirty and old that its hard to wear.
But lets focus our attention to future outlook of APP. There had been some mistakes done by APP’s ex-CEO in past which lead company into nearly bankruptcy territoriality. However its nothing to worry about it now. We believe that new management will work on to strengthen APP’s balance sheet. In last quarter, APP made significant profit with a revenue of aprox. 139 million and sales growth of ~2.5%. We think this trend will keep going forward for APP. APP has significant high beta but need to consider that in the hands of new management there are better chance that APP financial condition will improve.
APP ex-CEO has a very eye for design but he may not be good in terms of finances. But new management will focus on financial management. We think APP stock is a long term bet. There are short term bullish kind of behavior of APP stock but one needs to be patient enough and have faith in APP brand.
(P.S. image courtesy from yahoo finance)
Let’s know what do you think. Your comments are most welcome!
Have a cheerful day!
-hr