Taming a Wild Croc

 

I got kicked very hard in my investment portfolio after $CROX pre announced earnings that fell short of expectation. It is hard to escape when an investment drops 40 percent in a matter of second.

The company’s announcement about 3rd quarter result was not so bad but the 4th quarter expectation is nothing to write home about. CROX’s management is encountering some resistance in its effort to turn the company into a 4 seasons shoe provider.

The stock is currently trading at about 10 times earnings and until growth returns, I doubt very much the stock will be moving much from these levels (mid teens).

I could easily give up on the company and move on to greener pasture. That is easier said than done. I find it hard to find great companies worthy of my money and trading at reasonable valuations. Yes, there are many cheap companies out there. Cheap only is not good enough for me. I crave greatness.

In the light of this earning revision, I must revisit the thesis that CROX is a great company with strong growth potential.

In order to answer this question, I focus on the success factors that will not change in the future. I focus on the constants. In a changing environment you must focus on the things that do not change. That is a trick I learned from Jeff Bezos.

Here is how I think about CROX’s greatness and its potential future:

• Comfort. Customers buy Crocs shoes for their comfort.
• Crocs are still the best-sellers shoes on Amazon.com. The product resonates.
• Deep internet product genetic (rating, reviews, etc.).
• Retail space expansion at 20% clip for many years to come as Amazon.com bulldozes retailers around the globe, freeing prime retail space for the retailer winners (Apple, Crocs, etc).
• No debt.
• Well managed.
• Inventory under control (that is the biggest risk).
• Pace of innovation unabated (Chameleon, Translucent, new retail concept, etc.).
• Persistently strong backlog outside of 4th quarter.
• Design capabilities.
• Weight of the product. Shipping advantage.
• High return on capital.

For these reasons, I bought more shares on the selloff and I have no intention of selling my shares. CROX is an exceptional company. It rarely pays to sell an exceptional company until it loses this characteristic.

What do you think?

Written by Michael Bigger. Follow me on Twitter and StockTwits.