True Religion: Stock on Fire and Still Plenty of Short Action To Be Had

If you're reading this now it's likely that you've already tried to dig up as much as you could elsewhere on True Religion (TRLG). And for good reason; the stock just absolutely caught fire last week and finished out the week up something like 30%. The headline of the gains was the fact the Sterne Agee analyst Ron Bookbinder upgraded the stock to "buy" from "sell" and boosted the target price from $16 to $20 early last week.

Underlying that, though, was the fact that any positive news at this point could spark the stock because it has such a large following from the short crowd. I don't know how much you can actually trust YahooFinance!'s short % numbers, but it claims that 46% of the float was sold short in early May. There's a lot of controversy out there about what a high short % means for small cap companies, but I'm fairly sanguine about the whole thing. Now if you have a company that depends on raising growth capital through constant equity financings, then it can be a big problem -- but I have a tendency to avoid those situations in the first place.

For companies that don't have that problem, the shorts can try to depress the stock price for as long as they like, but if the company continues to deliver on the business side, the shorts are going to have trouble keep the stock price down permanently. At the end of the day, shorts can often just be a great built-in supply of buyers. I don't know that True Religion will hold onto all the gains that it took in last week in the short term, but I also wouldn't be surprised if we saw more episodes like this in the future, since I have to imagine that even after last week there is still plenty of short action out there on the stock.

And speaking of shorts, the one thing that I do sincerely hope for is that Jeff Lubell (the CEO) can keep his comments about the stock to himself and just run the company. He's got a big interest in the stock price since he owns a big chunk of the company, but the way I see it, the best way he can work on the stock price is by continuing to build a solid business. Do your job and check the stock price three years from now. I just really am not a fan of situations like Overstock (OSTK) and Pre-Paid Legal (PPD) where management has an unhealthy hangup with what's going on with the stock (please, OSTK and PPD shareholders, don't pepper me with emails, I know how you feel already).

And while I'm at it I might as well comment on the announcement today that the company has concluded the strategic review with Goldman Sachs (GS). I'm happy about it. Come on, people, we all knew at this point that the company wasn't getting sold. Now at least it won't be paying the steep advisory fees to Goldman.

Disclosure: Author owns shares of True Religion.

TRLG 1-yr chart: