Because of American Apparel's interesting (albeit vulnerable) niche and advertising genius, I think the company can continue growing at impressive rates in years to come. In fact, even if the company's core products are targeted by larger, more established retailers, I personally believe that many of today's 20-somethings are very conscious that American Apparel hires only American workers and produces all its products in the United States. In a world almost completely focused on 'lowest cost wins,' I think that this sort of integrity is appealing to those socially conscious teenagers and 20-somethings.

As I said before, I believe the company's marketing strategies are going to lead the company towards continued growth for the next few years. Similar to Abercrombie & Fitch (NYSE: ANF), the company's marketing campaigns tend to be sexually-provocative and a little over the top. While this seems like a negative at first, think about the world in which we live today. MySpace, Facebook and instant messaging are the primary ways in which young Americans communicate. Considering this, if a marketing campaign can generate huge buzz simply by its controversial nature, its benefits are compounded simply by the rapid sharing of information in today's internet age.

In its most recent earnings report, the company reported an astonishing 27% increase in same stores sales! Anyone familiar with retailers knows just how amazing that kind of growth really is. With its popular products and clever marketing, I think this kind of growth can occur throughout the next year. In fact, I think the company can earn more than 40 cents per share in 2008, an increase of roughly 60% for 2007 numbers.

How can the company continue growing? After all, marketing and clever production selections can only do so much. I think the company's goals of continuing the growth in its store count is a very good strategy. With just 175 stores established, the company has already accomplished more than the overwhelming majority of retailers. But once the company reaches its desired store count of roughly 800 stores (don't worry, over the next few years), I think revenues will be enormous and scale will help produce huge margins compared to other retailers.

While I recognize 35x forward earnings is an expensive price to pay for a speculative retailer, you need to compare it to other quickly-growing retailers to understand that this is actually quite a reasonable price to pay. For example, lululemon (NASDAQ: LULU), an interesting comparable because it owns its own stores like American Apparel, trades for 63x estimated '08 earnings. I firmly believe American Apparel's multiple is going to expand in the coming year due to numerous potential catalysts, including but not limited to: uplisting, increasing analyst exposure, and increased institutional investor recognition.

I think American Apparel might uplist in coming months considering its large market capitilization to be trading on the American Stock Exchange. Although this might seem insignificant, it's actually quite important because many investors simply do not trust the AMEX. Additionally, I think the company has the potential to gain significant analyst exposure in the next few quarters considering there are only three analysts who follow the stock now. Lastly, I think that interested fund managers are waiting until the new year or confirmation to establish a position in this speculative stock -- a phenomena I outlined in my recent post on Research in Motion (NASDAQ: RIMM).

With the stock off about 10% in the last five days for no particular reason, excellent growth potential, a multiple with expansion possibility, and several potential catalysts, I think buying American Apparel at these levels makes sense.

Disclosure: Kevin Kelly is long American Apparel and recently closed a position in lululemon.