So you are heading into the 4th of July holiday looking to bolster your portfolio with a good old-fashioned American stock. While this stock is not for everyone, American Apparel ($APP) may be able to do just that if you do not mind a little risk.
American Apparel has not had the best of fortunes lately, which is why this is a speculative play only. However, the extremely low price point (closing Friday at $0.86/share) does soften some of the potential risk. This creates a situation where a small money investor could buy 100, 200, or even 500 shares and not fall into financial ruin if the company goes belly up, but at the same time could squeeze out some decent profits if it does do what some folks are hoping for and that is shoot up to a solid $2-$3 price point.
The company has had its rough spots in the past; from a sexual harassment case filed against their interesting CEO, Dov Charney, to many people predicting a possible bankruptcy last fall when the stock dipped as low as $0.56/share.
APP survived though. While the price still suggests anemic life at best, they are churning away by opening up an online store in China (although from a business sense stand point you have to wonder how popular clothing from a company called American Apparel will be in China), a mobile store for Japan, and two new retail outlets in Australia. They also recently announced a partnership where they will be the exclusive merchandise manufacturer for a new exhibit at the Hammer Museum in Los Angeles called “Made in LA.”
More over, this company should be admired for the idealistic nature behind its business model. They use a vertically integrated model which minimizes the use of outsourcing. This means that all of their knitting, dyeing, photography, marketing, distribution, and design happen in L.A. just like how many American companies used to operate. They are also reportedly able to do this while paying their workers a living wage. While many speculate that this might spell death for this clothing company, there is something to be said for this practice.
American Apparel’s growth hinges on job and economic growth for the 18-30 year old population. It is in American people’s nature to want to buy American-made products if they have the extra money to do so. The idea that you are buying something that was made within this country by a fellow citizen who is getting paid a decent wage completely justifies the extra few dollars that APP’s clothing often runs, but only if surplus money is abundant.
This means that American Apparel is nothing more than a speculative play, but at such a low price, it could be a nice addition if you are looking to be patriotic this holiday season. It could also end up being a good short play to add some funding to your portfolio.
Disclosures: B. Van Pelt does not hold any positions in American Apparel, although he may enact a short speculative play in the near future.