by Serge Berger | December 31, 2013 8:25 am
Once-ballyhooed shoe company Crocs Inc (CROX) on Monday rallied big after news of a significant investment on the part of global alternative asset manager Blackstone Group (BX). Blackstone is said to have invested $200 million in the shoemaker in return for a 13% stake in CROX stock, as well as a couple other perks.
BX also will receive two seats on the board and a juicy deal of preferred stock with a 6% cash dividend. The preferred shares can be converted into common stock at $14.50 per share if, at any time after three years from the issuance date, the daily closing price of common CROX stock equals or exceeds $29 for a period of 20 consecutive trading days.
Crocs plans to use the proceeds of the investment for a $350 million stock repurchase program approved by its board of directors. More precisely, Crocs plans to use the net proceeds of the investment, approximately $180 million, as well as excess cash to fund the repurchase plan, the aim of which is to reduce outstanding stock to lower the stock’s volatility. Additionally, the company announced that chief executive John McCarvel will retire in April 2014 and also stepping down from the board.
Most analysts, traders and investors seemed to welcome all of the above news, which sent the stock soaring 21% Monday.
On both the longer- and shorter-dated charts, Crocs stock has had a choppy going since 2011, where after a good run-up off a late 2009 bottom, CROX again began to trade lower. Through the lens of the below multiyear weekly chart, note that after sliding off the 2011 highs, CROX stock began to build a nice base in late 2012. That base, with a retest in October of this year, followed by Monday’s big rally, has now been confirmed, and positions CROX much more constructively.
Monday’s move also pushed CROX stock past a 12-month diagonal resistance line (see arrow on the chart).
On the daily chart, Monday’s significant rally in CROX stock led it to hurdle over its 200-day simple moving average (red line) as well as jump out of a multimonth base. Both the stock’s 50- (yellow) and 100-day (blue) moving averages are left behind as well, and CROX now has a next upside target around $17.40, or almost 8% higher, which would close the big down-gap from July 25.
Monday’s price action in CROX stock was exceedingly constructive and this newfound momentum stands a good chance of continuing in January. However, first, a few days/weeks of consolidating Monday’s rally may ensue.
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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 not hold a position in any of the aforementioned securities
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