CROCS Gores the Shorts

Children of all ages love to wear the multi-colored clogs manufactured by CROCS, Inc (CROX-NASDAQ).  The stock of CROCS , too, seems to have fans...a nifty group of institutional investors and a loyal cadre of individual investors that are apparently taking Peter Lynch’s principles to heart.

But with nearly 50% of the float shorted, the stock has been a bloody battleground for months.  Indeed, the stock now boasts a market capitalization and enterprise value on par with Wolverine World Wide, a longtime member in good standing of the footwear industry whose 2007 revenue should clock in approximately 3x that of CROCS.  Margin differentials account for part of the valuation gap between the two stocks, but clearly the stock’s embed different growth rate assumptions, the secret sauce that makes growth stock investing more of an art than a science.

Battling valuation insensitive growth stock investors can be a trying experience for short sellers, and in this case the longs might not be satisfied until every Tom, Dick and Harry own a pair in each and every color.

CROCS shareholders are no doubt tripping all over themselves in their clumsy clogs celebrating a new high in the shares. To be sure, third quarter earnings were a blowout and management continues to execute smartly against their plan...and have clearly mastered the game of “under promise and over deliver”.

Eventually the stock will have a nasty pullback...but will it happen from levels twice the current quote?

Pull up a chair and grab a bag of popcorn...this one should prove to be as entertaining as anything Borat can provide...although the shorts might feel that this story should be rated X for violence.
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. 1440 Wall Street.  No position CROX.

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