If ever something looked like a walking, breathing fad, it's Crocs. And by fad we mean both a fashion statement and an investment that's destined for a short and perhaps not-so-smooth ride. But given that the footwear maker keeps crushing analyst estimates and that its shares have soared sixfold since the company went public last year, Crocs is too tempting to ignore.
Founded in 1999, the company is a remarkable success story. It developed Croslite, a material that molds to your feet and makes you feel as if you're walking on Fig Newtons. Crocs' original shoe looks like a neon clog with Swiss-cheese holes.
A few years ago, against all reason, the shoe became a fashion statement and sales took off. For the quarter that ended March 2006 (Crocs' first quarter as a publicly traded company), the firm posted sales of $45 million. By the second quarter of 2007, sales had soared to $224 million. Profits have grown from 17 cents a share to 58 cents in that span.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Circling vultures. Naturally, this has created high expectations among investors, who have bid up the shares to lofty levels. At $68 in mid October, the stock (symbol CROX) had a market value of $5.5 billion and traded at 27 times estimated 2008 earnings of $2.52 per share. Meanwhile, short sellers are circling Crocs like vultures, and insiders are unloading shares at a healthy clip.
But analyst Jeff Mintz, of Wedbush Morgan Securities, makes a persuasive case that the stock has legs. For starters, Crocs' classic style, which he calls "the ugly shoe," now accounts for just a quarter of sales. Crocs has been aggressively introducing more conservative-looking footwear. The company is also introducing a line of Croslite-based clothing. YouUd think a Crocs shirt would look like a wet suit with holes. But the material is spun into a yarn and woven into fabric.
Perhaps the biggest potential is overseas, particularly in Japan and Europe. Mintz says he recently saw a picture in London's Daily Mail of Prince William's girlfriend, Kate Middleton, sporting a pair of Crocs.
Still, Crocs' stock is in a precarious position. Sales growth won't have to decelerate much to cause investors to flee. If Crocs' classic shoes suddenly go the way of other footwear fads (think Heelys or Earth Shoes), shares could plummet. If ever there was a stock to unload at the first sign of trouble, it's a creature of fashion like Crocs.
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Want To Retire at 55? See If You Can Answer These Five QuestionsWho said you can’t retire at 55? If you say yes to these questions, you may be on your way to an early retirement.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the FedA lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
