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One very discerning reader reminded us last Thursday night that children's apparel player Gymboree (GYMB) has surged 36% since we recommended the stock as a play on the approaching baby boom. In case you missed this report, here's a quick synopsis.

1. According to the US Census Bureau, the number of children age 5 and younger is expected to grow 10% over the next decade. Babies need a lot of things, but for the sake of brevity, we came up with three essentials: clothes, diapers, and toys. Gymboree was our clothing pick.

2. Gymboree, a specialty retailer that operates stores selling apparel and accessories for children and women under the Gymboree, Janie & Jack, and Janeville brands, was our top pick of the group. Same store sales ("comps") had been on fire, which we found astonishing given the fact that that Gymboree faces stiff competition from department stores and mass merchandisers alike. Target has been pummelling GYMB's rivals to the pavement; GYMB, in the meantime, was blowing away analyst estimates. That's the sort of risk/reward that gets us out of bed in the morning.

3. We labeled the risks of investing in the stock, as we typically do: "Because children’s apparel is no-moat business (low switching costs/volatile pricing environment), investing in Gymboree is somewhat risky. The fight for market share means inconsistent revenue patterns and meandering value propositions."

4. We closed our pitch with the following: "...we like how Janie & Jack has captured the high end portion of Gymboree’s target market. The boutique-style operation is expected to have 80 outlets up and running by 2007. With better inventory control, Gymboree could be a strong contender. We await a more predictable operating margin picture from Gymboree, which is debt free."

GYMB 1-yr chart:

Source: Gymboree: Tumbling Out the Profits (GYMB)