Stock Watch
A Sale on Crocs
The trendy shoemaker's stock looks more appealing now that it's less than half the price of its 52-week high.
By Bob Frick, Senior Editor, Kiplinger's Personal Finance
February 5, 2008
Shares of funky footwear maker Crocs were beginning to show some life -- that is, until they got clobbered February 5, along with the rest of the market.
Crocs stock splattered like a rotten pumpkin the day after Halloween, as investors responded to the company's third-quarter earnings report. It continued to fall until it steadied in January, then started inching its way up again recently.
Bargain hunters may be thinking that, just as the company was ridiculously expensive at $75 a share before its crash, it’s looking mighty tempting at less than half that price now. The Croc hunters may be right.
Crocs's had the kind of story and numbers of which both fashion and stock fads are made. Its brightly colored shoes, which are light, waterproof and porous, first took off as beach and boat wear. They were so comfortable that nurses and others professionals who spend lots of time on their feet started wearing them. A few years ago, the shoes became a fashion statement, against all reason, and sales soared.
The shoemaker posted sales of $45 million for the quarter ended March 2006 (Crocs' first as a publicly traded company). Sales soared to $256 million in the quarter that ended September 30, 2007. Profits, meanwhile, have grown even faster, from $6.4 million in that first quarter to $56.5 million in the most recent quarter (from 17 cents per share to 66 cents).
Although Crocs's earnings beat analysts' estimates by 3 cents a share in the third quarter of fiscal 2007, its revenues came in $2 million short of analysts' expectations. The company also said inventories had quadrupled from the same period a year earlier, raising fears that it might have to cut shoe prices. (Some of the extra inventory, Crocs said, resulted from changes at its European and Japanese warehouses.)
The stock (symbol CROX) plummeted November 1, after the disappointing report, and continued to fall until it hit $26.32 in January 2008. The stock closed at $32.93 on February 5, down 8%. Both the NASDAQ composite index, on which CROX trades, and the Dow fell about 3% February 5.
If you took a bath on Crocs, you can’t say we didn’t warn you. In our September 26 Stock Watch, we said: "It's a good thing Crocs are buoyant because, at its current price, the stock is surfing on market foam."
Crocs investors must be anxiously awaiting the company's fourth-quarter report, scheduled to be released February 20. If the company follows its pattern of under-promising but over-delivering, the stock could get an enormous boost. But if it merely meets analyst expectations -- currently at 44 cents a share -- don't expect any fireworks.
Also, don't read anything into the stock's 33% rise from its close January 15 through February 1. That simply could be investors realizing they overreacted by pushing the price down much too far.
Unless Crocs is experiencing a system-wide meltdown, it is still a growth company -- and a cheap one at that. The stock trades at just 12 times estimated 2008 earnings of $2.71 per share.
A Zacks Equity Research report says that, based on its conservative 2008 earnings estimate of $2.61 a share and a defensible price-earnings ratio of 17, this should be a $44 stock. That P/E ratio is less than the P/E ratios of other apparel makers with much more modest growth rates. The company itself forecasts 2008 earnings of $2.62 to $2.77 a share.
Even if the Crocs shoe fad blows up in the U.S., plenty of people in other countries are eager to defile their feet in the porous clogs. And Crocs has introduced several lines of shoes that look, well, like normal shoes, with the same squishy comfort of its traditional neon-colored footwear.
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Reader Comments (8)
Posted by: Sruly at 02/06/2008 09:57:56 AM
Dont count CROX out. The inventory build up was to meet the international demand which they were not able to do till now. They have been sold out in most countries outside the US. People in the US are oblivious to the rest of the world. I live in Israel where the stocks have been very low. Now that the warm weather is almost here the new styles and stock are flying off the racks. The same is true for Europe...
Posted by: Andrea Casteel at 02/06/2008 10:19:40 AM
Crocs is not a fad. A pet rock is a fad. For all the millions of people who have foot pain from injury, arthritis, etc., these ugly shoes are a godsend. First thing that happens is you loose all your vanity and gratefully embrace the multitude of colorful Crox available to sooth your aching tootsies. Take it from one sore footed baby boomer. Crocs rule!
Posted by: Andrea Casteel at 02/06/2008 10:20:57 AM
By the way, I bought my CROX stock immediately upon trying on my first pair.
Posted by: Bill at 02/07/2008 02:21:45 AM
Crocs stockprice will (at least) double in value within 6 months--i.e. after q2 earnings for sure...Does anyone realize how much of there staff is in Beijing for the Olympics alone? And how long they have been there in promotion? These guys know exactly what they are doing.
Posted by: TSKamaka at 02/07/2008 10:19:49 AM
A team member at a triathlon let me try on her Crocs. I bought a pair, then I bought the stock. I also bought a pair of the copy cats for comparison - they really aren't the same shoe. I gotta wonder how many analysts have actually tried on a pair. In one article after another Crocs have been referred to as ". . .the ugly shoes with holes in them. . ." or ". . .the colorful shoes with holes in them. . ." which leads me to believe that many analysts have probably only seen Crocs but not tried them on. Wearing Crocs (vs. looking at them) makes a world of difference and has certainly influenced my decision to buy the stock.
Posted by: Shef at 02/22/2008 03:33:47 PM
There always seem to be an "I told you so" attitude however what you didn't inform readers is that CROX grew revenues 130% in the 3Q and earnings 140%. The reason for the drop was not that CROX was "overpriced" as being inferred in the article but was the subject of a bear raid. If you look at AAPL you'll see the same pattern where in the 3Q after beating both revenues and earnings took a huge drop off of their highs. The overall market sentiment right now is overly negative and good companies are subject to bear raids. So to say "I told you so" really doesn't impart any real analysis to readers.
Posted by: Eddie at 02/26/2008 06:19:30 PM
I just bought CROX today. This is a growth company that is priced like a value stock and is rapidly expanding worldwide. This stock has been WAY OVERSOLD and has a 2008 PE of 8, a PEG of .39, and no debt. Look for this stock to quadruple over the next 5 years.
Posted by: rosesryellow at 03/10/2008 02:25:47 PM
The US is prone to fads. But not everyone in the world is the same as Americans. Comfortable, low priced, well marketed shoes from America? Doesn't that sound like a dream come true for many developing areas like Eastern Europe, Asia, and Mexico/Latin America? At the very least for kids.