Sunday, January 13, 2008

Revisiting Crocs (CROX), Fallen Growth Stock

Would you invest in the company which makes and sells these shoes?

If you didn't know much about these shoes, many of you might say, no, you would not invest in the company which makes these (ugly) shoes.

However, since it's IPO in early 2006 to October 2007, the stock has gone up from a low of $10.16 to a high of $75.21. How could a stock which makes the footwear above have a stock price that goes up to very high levels. Certainly, this must be a fad.

But Crocs (CROX) bulls say that everyone is using them from doctors to children to nurses. They say there is an international growth story, and that they patented their special soft "Croslite" rubber material.

On April 17, 2007, Wallstrip, the Financial Video Blog, created a good video on Crocs (CROX) and the Crocs Phenomenon:

WallStrip April 17, 2007 Video on CROX

However, the skeptical investor who thinks that rise of Crocs (CROX) with its "faddish" product is unwarranted, see their side validated when on November 1, 2007, CROX reports bad earnings and guidance. The conference call mentioned problems ramping up manufacturing and distribution to meet higher demand in Europe and Japan which cost the company about $30 million in lost sales. The conference call also mentioned the company was experiencing distribution issues, and seasonal slowdown due to the seasonality in Europe and Japan. The stock takes a huge hit.

CROX's stock price is further hit in January 2008. Rocky Mountain news reports problems with Crocs (CROX). The European Union declared one of CROX patents is not valid. Also, Crocs has distribution problems, and inventory is growing faster than sales. In April 2006, Crocs filed lawsuits against 11 companies citing patent infringement. (This foreshadows problems with copy-cats.)

So is CROX a buy right now? CROX currently has a forward PE ratio of 10.7 and there is still international demand. However, the stock has lost its momentum, and there are enough problems right now to consider.

And for those investors who are still skeptical, and still believe CROX is a fad, there is nothing wrong with just staying away from this stock.

No comments: