Crocs Update: Investment Thesis: Walking on Marshmallows

Written by Michael Bigger. Follow me on Twitter.

I am not going to bore you with more complex financial facts about Crocs (CROX). Search for Crocs on this blog or look at the latest earnings report to convince yourself. CROX’s business is on fire. The company has the highest margin in the footwear industry (Biggest Footwear Public Companies).

Why that is?

A good place to start investigating the nature of CROX successes is on Amazon.com. Day in day out Crox has about 40 to 50 percent market share on the top bestsellers shoes on that site. On August 25, it had 17 on the best 25 for a share of 68%.

I recently read most of the customer reviews associated with the top selling Crocs. What I learned during that process is best summarize by this statement from one of the reviewers:

“They feel like walking on marshmallows”

It is that feeling of comfort that makes some people disregard their indignation to the Crocs Classic look and wear the shoe. No other shoe companies that I know of delivers comfort like CROX does.

We are already up about 7+ times on our Crocs investment and we think the run is far from over. Sure, the stock will experience some severe pullbacks but we think the company will sell many more shoes in 10 years from now. Crocs global expansion holds promises. The company should deliver about $1 of free cash flow during 2011. Given the nature of its competitive advantage, its growth rate and its untapped market globally, we think CROX is worth $20 at a minimum. $30 is possible.

We intend to maintain our investment in $CROX….

•         As long as Crocs can deliver the marshmallows experience
•         As long as Crocs manage its business well and with very little leverage
•         As long as Crocs stays at the top of the rankings on Amazon.com
•         As long as the stock is not overvalued
•         As long as the company treats shareholders well