On Wednesday, it was reported that shoemaker Crocs (CROX) had been in buyout discussions for the past two months, but as those talks have faltered, CROX is now ready to explore alternatives. According to Bloomberg, Blackstone Group (BX) is evaluating alternative deals with the company. Possible options for a Crocks buyout could include a sale of a major stake in the company or a joint venture with a strong partner.
It was further reported that the stock’s slide over the past few months has led potential buyers to decide against a deal because majority holders in CROX were unwilling to sell at such low a stock price. As a result of the news, Crocs stock rose 9.76% to $13.89 on Wednesday, which values the company at just about $1.23 billion.
Also important to note when looking at CROX at the moment is that on Oct. 30, the company reported a slight earnings beat of 18 cents per share on $288.5 million in revenues. However, guidance for the fourth quarter was for a loss of 20 to 23 cents — much worse than analyst estimates for a 3-cent loss.
Before looking at the charts of CROX, let me say that I generally find it better to avoid trading stocks involved in buyouts or other strategic talks. Such situations have exceedingly high levels of headline risk — an environment not conducive to technical analysis given that any bit of news can lead to a wild stock swing.
Looking at Crocs’ multiyear chart, its fall from grace continues (most likely part of the reason for the buyout talks), although after a selloff following the Q3 earnings announcement, CROX did manage to hold support around the $12 level, which was the November 2012 lows.
With Wednesday’s rally, the stock — through the longer-term lens — has major resistance currently coming in around the $16 area, which is where a simple downtrending resistance line from April 2012 comes in. While this line is currently not in sight, given the company’s talks … well, who knows where the stock gets pushed to. And a break above $16 still might be telling.
On the daily chart, note that irrespective of Wednesday’s news content, from a pure price action point-of-view, the move stands as bullish for Crocs stock. Wednesday’s almost 10% rally came on massive volume and pushed CROX above its 50-day simple moving average (yellow line) as well as a multimonth resistance line. CROX shares did close off their intra-day highs — a move above which would ultimately push the stock toward its 200-day SMA (red line) and into the still unfilled down-gap (yellow box) from July.
Nonetheless, given the news, Crocs stock is best avoided for the time being.
However, quicker traders could try a cute long-side CROX trade in hopes for some follow-through buying from Wednesday’s rally.
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did hold a position in any of the aforementioned securities.
