Thursday
Apr152010

Why our Investment Blog is Boring

Written by Michael Bigger. Follow me on Twitter.
 
 
Because once every three to five years, we buy one stock. While we wait, we suffer from investment apathy. We are boring.
 
Why do we buy one stock every three to five years?
 
It is very simple. If you look at the following charts, they reveal the best investments we have ever made:
 
1. We bought Amazon.com in 2001 below $10.
2. We started buying Crocs in July 2008 and purchased aggressively below $1.
3. We shorted Deckers in early 2005 and we covered in early 2006. We should have gone long big time then.
4. We bought McDonald’s in 2003 at about $13.00.
5. We bought Netflix in 2005 in the low teens.
6. We bought Priceline at about $2 (pre-reverse split of one for six).
 
These are all companies we know quite a bit about because we use their products. We don’t need to do extraordinary things to get very good returns. The most difficult thing for us as an investor is to be patient waiting for the simple opportunity. When we force it, we don’t do well. We have the scars to prove it.
 
It has been almost two years since we started purchasing Crocs. While we wait for the next opportunity, we work on crafting our trading algorithms. It fulfills our need to be busy without putting our investment assets at risk by doing stupid things. We also read a lot. This balance works well for us.
 
If you are into boring and profitable, stay tuned in, we will discuss cool investment topics until a mighty opportunity presents itself. 
 
 
  
 
 
Wednesday
Apr072010

What Do Stock Price Targets of $0, $10, $20 and $30 Mean for Crocs? $CROX

Written by Michael Bigger. Follow me on Twitter.

 

I posted this on Twitter this morning: Trying to explain why $crox is a $20 stock on my blog. Cant find the proper words. Hard to be a French Canadian writing an English blog post.

I recently explained my investment thesis on Crocs in this POST. I did not provide a fair value or a price target for the stock because it is too difficult to do so.

This post's intention is to comment on a set of targets for CROX using the Price/Earnings ratio (P/E) and the Price/Earnings to Growth ratio (PEG).

Since CROX has been losing money for the past two years, we use an earning power of about $1 per share for our computations (POST). On the growth rate side of the equation, we use Yahoo! Finance's 5-year expected earning growth rate of 18.66%. Take these numbers with a grain of salt. The purpose of this post is about evaluating a range of possibilities and nothing else.

Let's look at different price targets:

 $0: The Washington Post was right about Crocs in July 2009. But HEY! they were wrong

$10: A very conservative P/E of 10. We are basically there

$20: A PEG ratio of about 1

$30: A more aggressive growth rate forecast based on the strong pre-booking trends persisting for a few years. As an example, U.S. wholesale fall and winter pre-bookings are trending at +70%. A high growth rate would scare short sellers away. Although possible, this scenario is highly unlikely.

Gun to my head, I pick $20 as a fair value for CROX. A P/E of 20 is very reasonable considering the growth rates that are about to be reported. What is your price target on CROX?

 

 

Thursday
Mar252010

Giving our Crocs Shoes to Charity

Written by Michael Bigger. Follow me on Twitter.
 
 
We have been quite busy in the past few years researching Crocs. Since we make one big investment every 3 to 5 years, we want to get to the essence of the company we invest in. With regards to Crocs, on a daily basis we do the following:
  1. We wear the shoes and understand why people wear them
  2. We check the Amazon.com product ranking to see how the brand performs
  3. We analyze the interactions between customers and the company via social media
  4. We try to understand  the culture of the company by analyzing what the company says and does via the internet
  5. Monitor the debate about the shoes and the company on the Crocs Twitter thread

Why are we giving our Crocs to charity? Some people will certainly benefit from these great shoes. In addition, we think Crocs will release some cool styles in 2010 and we must make the space available for these.


Sunday
Mar212010

Investment Leadership Lessons From Dancing Guy

Written by Michael Bigger. Follow me on Twitter.

 

Derek Sivers wrote a great blog post entitled "Leadership Lessons from Dancing Guy". I am mentioning this post in this investment blog because an investor when acting contrary to most investors, stands alone and looks ridiculous. I certainly felt that way when;

 

  1. in 1995, I invested in Innovative Fibers.
  2. in 2001, I invested in Amazon.com below $10 while some analysts counted the company for dead.
  3. in 2008, we went all in with Crocs below $1.

 

If your facts are right, the investment thesis appealing, and if you are generous about discussing your investment thesis, a follower will show up. This process could turn one follower into a crowd and this crowd could enhance your catalyst.

  

 

 

What is your take on this video?

 

Wednesday
Mar172010

Grocery Stores as a Hedge Against Inflation

 
 
Written by Michael Bigger. Follow me on Twitter.
 
 
I recently read Asif Suria’s March 2009 Newsletter (I highly Recommend reading it). Asif made the following comment about how Safeway (SWY) "The Company is also a good play on inflation eventually making a comeback."
 
Anyone that has been reading this blog knows I am very bullish on inflation picking up. Recently, I posted this; Marketplaces as a hedge against inflation, on my blog. Although I own the obvious inflation hedges such as gold, lean hog futures, Milk futures, short treasuries, etc. I am always interested in finding the non obvious inflation hedges. They might be available for much cheaper than gold.
 
I asked Asif to explain his rational about Safeway and inflation. That is what he had to say about it: “The grocery chain stocks got hit by double head winds in this recession, both through decreased sales from customers cutting back on purchases or choosing lower priced products and from price deflation due to falling commodity prices. This is why some of them were selling at very attractive valuations last year and I picked what I believed to be best of breed in Safeway.
 
Once inflation returns, these chains will increase prices as their low margins will not allow them to absorb price increases without passing them on to customers. Hence my theory that they provide an embedded inflation option. Obviously this is assuming that the next inflation cycle (if and when it occurs) will have the same characteristics as the last cycle and from what we have seen in this recession, hardly anything has stayed true to script.
 
The stock of the largest egg producer in the United States Cal-Maine foods (CALM) has held up well primarily because of these expectations of inflation”. 
 
I like food, I own lean hog futures! Do you know of any other inflation beneficiaries I should be investigating? Let me know.
Friday
Mar122010

A Terrific 2010 for Crocs?



Produced by Michael Bigger. Follow me on Twitter.
Friday
Feb262010

Crocs, $crox

Story: Crocs reported fourth quarter earnings last night. The results beat analysts’ forecast both on the top line and the bottom line. The company issued first quarter 2010 guidance which are above analysts’ consensus.

In addition, short term turnaround specialist John Duerden, who was appointed CEO of Crocs in February 2009, will retire from the company and John McCarvel, the company chief operating officer, will become Crocs’ CEO.

The stock plunged 14% on the news. Should investors worried about this situation? Could there be a canary in the coal mine? It is time to reassess our investment thesis about Crocs.

Background: No introduction to this company is needed. People either like Crocs or they don’t, but either way, they talk about them. Being talked about is great when the barriers to getting brand attention are so high.

Last summer, if you typed “crocs” into Twitter’s search box, you identified the following criticisms about the company:

1. Crocs are coyote ugly.
2. Knockoffs are cheaper; there is no need to buy Crocs.
3. Crocs are a short-term fad.
4. The company is mismanaged.
5. The company is doomed. The Washington Post reports that Crocs is on its way to bankruptcy (July, 2009). 

Fast forward six months and a different view of the company emerges:

1. Crocs’ newest styles are stylish. Check for yourself on the Crocs website.
2. From Amazon.com’s "Best of 2009" list of shoes and handbags: the Crocs Cayman Sandal. 
3. Crocs had up to six shoes among the top ten bestsellers in men’s shoes throughout the year on Amazon.com.
4. I just came back from India and the Dominican Republic, and I can attest that Crocs are everywhere. Crocs are not a fad. 
5. John Duerden, short term turnaround specialist and appointed CEO of Crocs in February 2009, did an amazing job stabilizing the company.
6. As of December 31, 2009, Crocs’ cash increased to $77 million, despite fully repaying outstanding debt. 
7. Wholesale, which had been a drag on the business, had flat comps for the fourth quarter.
8. Wholesale spring and summer pre-bookings trends are +30% Europe, +60% America, +130% Total Americas, +61% Asia, and +50% globally.
9. U.S. wholesale fall and winter pre-bookings trend is +70%.
10. The CEO gave a presentation (slideshow) at the ICR Conference on January 13, 2010. He sounded very upbeat and forecasted a return to profitability for 2010.

The numbers: With 3,700 employees and sales of $650 million, Crocs has a market cap of $636 million, giving it a price/sales value of 1. This hardly qualifies as a bargain, especially considering the company lost about $.49 a share for 2009. During its heyday, Crocs’ net profit margin topped at an unsustainable 20%. It seems reasonable and conservative to assume an industry average net margin of about 7% for Crocs for analytical purposes. On that basis, the stock trades at a P/E of 14 (E being defined as conservative earning power). The company has about $1 to $1.50 per share of excess working capital.




The thesis: Looking at the table above, it becomes obvious that wholesale has stabilized. If you look at the wholesale pre-bookings metrics displayed in bullet #8 and #9 above, one can assume this business is coming back with a vengeance (and fourth quarter is the seasonally slow quarter). I don’t know about you, but I do get excited by sales growth rates way above 20%, as the numbers above indicate. They are all pointing positive and strong for 2010. 

With regards to John McCarvel, we just don’t know enough about him at this stage to make an assessment. We are monitoring.

For us at Bigger Capital, an investment in Crocs is a very long-term bet that the company will strongly expand its market share on a global basis over the next ten to twenty years. For Crocs fans, the satisfaction of wearing these shoes is as intense as the enjoyment of Coca Cola fans drinking their favorite beverage, Tempur-Pedic fans sleeping on a very comfortable bed, or Tylenol fans relieving their muscle pain. (Try a pair of the new “Almost Barefoot” ABF Flips and let me know what you think.) 

Risks:

1. John Duerden’s departure could be disruptive. 
2. As Crocs opens more stores on a global basis, its capital-heavy balance sheet becomes riskier.
3. The cat gets out of the bag and more competition enters the molded shoe business. 
4. The stock has rallied about ten times over the last year from a base of $.79. The stock could experience another sharp pullback.

Written by Michael Bigger. Follow me on Twitter.

Wednesday
Feb242010

Treasuries Payoff Profile $$

 

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