What a CROX!
Shares of foam rubber shoe maker Crocs, Inc. (CROX) nosedived yesterday after reporting record 4th quarter earnings after the market closed on Wednesday. If Trending123’s, John Lansing (check out his blog at investorplaceblogs.com) was bullish on the stock under $33 per share imagine what he thinks after the 13% one-day drubbing. He must be jumping up and down in his CROX! My goodness, if we ever needed more evidence that the market was inefficient, we have it here. As The Rational Investor, I made the case that markets trade inefficiently. Participants being the humans that they are have no chance to rationally determine the price of a stock without acting on emotion. That is certainly the case here with CROX. Just take a look at the CROX stock report. It was not that bad at all and yet boom, “Down you go!” say the shorts.
The company beat expectations in a quarter that for most retailers was a blood bath. Despite a weakening economy, and a depressed consumer, this company delivered and then some. The action should have been completely opposite of what transpired. So, what gives?
The Moody Market
Well, the mood in the market determines everything. Today, the mood is gloom and doom. Nobody cares what you did last quarter. All that matters is what have you done for us lately. With CROX, that means blasting the stock because the company reiterated guidance for 2008. What, the stock reports record results and reiterates guidance and the stock drops like a rock? That makes a whole lot of sense. Absolutely nothing changed regarding the future prospects of this company, but its valuation dropped precipitously. Yeah, keep telling me the market is rational! The company stated that they expect earnings of $2.70 and revenues of $1.16 billion. Analysts expect on average $2.70 earnings and $1.18 billion. Houston we have a problem. So they come up a bit light on the revenue side of the equation. Big friggin’ deal!
Anyone else think they may be just a bit conservative? Shoot, there are so many moving parts. I find it hard to believe that any prediction for a full year holds any validity.
Weeding Out CROX
CROX is growing like a weed and doing so in a WEAK economy. Imagine what would happen to this stock if their core market (a.k.a., low-and middle-class consumers) had the confidence and wherewithal to spend more freely. I know I would be buying a pair for myself and my entire family. I wonder if management factored in those tax rebate checks that are coming. I have to believe that alone is good for enough sales to push them above expectations. The point is that anything can happen. To slice 13% from the stock just does not make any sense. OK, to be fair there are some rumblings that inventory numbers are too high, but there are flaws in that argument, too.
Taking Stock
Last year, the company lost sales because inventories were too low. Management is doing the right thing by anticipating growth that has shown no signs of slowing. They are nearing their peak season. I’ll take a bit of inventory instead of lost sales any day. This is not a situation where we can truly expect to see asset write-downs anytime soon. Give it a rest. On the technical side, John Lansing has some excellent analysis of CROX. Check it out for yourself at Trending 123. It seems to me that there is a great buying opportunity here. Only time will tell, but I still like this story.
Jamie Dlugosch
Executive Editor, InvestorPlace
