5/15/07
Symbol: CROX
Closing price on 5/15/07: $73.16
At this time last year on the way to a round of golf, a friend of mine was raving about his new shoes. He said they were the most comfortable he had ever worn. To me they looked a bit silly. Comfortable, but silly. At that point, Crocs (CROX) shares were trading below $30. In July, they were under 24 dollars. Today CROX shares go for $73 dollars. Needless to say I missed the boat then.
I am now urging you not to jump on at todays levels. And if you have enjoyed the run up, please take a large portion off the table. Unlike in real life, in the stock market it is not fashionable to be late to the party. And for heavens sake do not arrive late to the party wearing Crocs.
As the weather here in Chicago is getting nice, it is hard to go anywhere and not see someone in Crocs. With this in mind, you may be wondering why I am bearish on the stock other than the already great runup. Well...
Crocs is a fad. Think about it, its not that difficult to see. They have only been around for a few years, and now they are hot as can be. I would like to remind you of a company called L.A. Gear. Shoes with lights in them sound ridiculous, but in the late 80's early 90's they were hot as can be. LA Gear shares were trading at 3$ in 1986, by 1990 they were $50 dollars. What happened to LA Gear? After treading water for a few years, they declared bankruptcy in 1998.
I see many similarities between Crocs and LA Gear. In 1990, LA Gear was doing $820 million in sales. Crocs is projecting 680 million in revenue for 2007. LA Gear's primary product was shoes targeted at the athletic, hip crowd. Crocs target market may be a bit more difficult to figure out, but one thing is certain: They are only good for wearing indoors or in good weather (see: holes in shoes).
Focusing on a single niche is almost never a good idea for a public company. For another high growth stock in a niche market, see Krispy Kreme. It may work for a while, but more often than not, these stocks come tumbling down. Bulls may say that there is room for Crocs to expand into apparell. I feel they have no room to grow beyond their current niche whatsoever. I challenge you to find me an example of a casual footwear company that successfully branched out into other areas. And for all you Crocs wearers, ask yourself this: Can you see yourself wearing Crocs T-shirts or hats on a regular basis. My guess it that all but the most die hard fans would say no.
Crocs is entering the summer season, its hottest quarter, there is no denying that. In fact, this may be the year of the Crocs. I predict they are very close to their peak however, at least in stock price. Crocs MAY have one or two more blowout quarters, but at a certain point its multiple will catch up to it. The stock still has momentum, and may yet reach $90, as Jim Cramer predicts. I for one will not be on that ride, and I also will not be on the ride back to the bottom.
(Down with Crocs image taken from ThatTShirtSite.com)
(La GEAR figures taken from: http://money.cnn.com/magazines/fortune/fortune_archive/2003/03/31/340090/index.htm )
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