Surf's Up!
By Julie Schlosser

(FORTUNE Magazine) – While many retail stocks have been pounded over the past couple of years, a pair of surfwear companies have been riding a long wave of success. Since June 2002 shares of Quiksilver have risen 100%, and Pacific Sunwear's stock has jumped more than 150%, vs. a 28% gain for the S&P 500 apparel retail index over the same period. That raises a question: Is it an endless summer for these stocks, or are they headed for a spill?

Pacific Sunwear (PSUN, $21), which sells surf and skate garb primarily in malls, is coming off a stellar first quarter in which it posted earnings growth of 88%. And its new hip-hop retail chain, d.e.m.o., should help grow earnings while diversifying the product line. But the stock could wobble in the face of tough sales comparisons against earlier periods.

Of the two, Quiksilver (ZQK, $23) may be the better long-term bet. With its collection of brands, from Roxy women's apparel to its namesake Quiksilver, the company's presence reaches from Huntington Beach, Calif., to Hong Kong. And Quiksilver is rapidly expanding its network of company-owned stores. Recently it began developing lifestyle shows for MTV and Fox Sports Net. S&P equity analyst Marie Driscoll predicts five-year compound annual earnings growth of 15%, driven in part by expansion in Asia. Says Driscoll: "Even people who don't surf are attracted to the authenticity of the brand." --Julie Schlosser