Why you should snap up Crocs

Though trading volume is frothy now, CROX is a good buy as it returns to profitability

By Louis Navellier Feb 26, 2010 12:37PM

Louis Navellier Crocs (CROX) RecommendationCrocs (CROX) is one of those stocks that Wall Street just loves to hate. After its epic collapse from about $70 a share in late 2007 to a mere $1 a share in early 2009, it’s easy to see why.

 

But shares are up seven-fold since their 52-week low, and many investors are wondering what's next for the funky shoe fabricator. The earnings outlook for CROX looks good, but the recent resignation of the company’s CEO has some traders betting the stock is due for a steady tumble on top of today's declines.

 

So what's the story? Well, though the news is mixed, I have to admit that right now I’m coming down in favor of continued success for this stock in the weeks ahead after the current spike in trading volume subsides.

 

Estimates for the current quarter look very good right now for Crocs. Though the company did post a loss of 13 cents a share in its Q4 report this week, the company significantly raised its guidance and actually expects to break even when it offers up Q1 numbers. The company also expects first-quarter revenue between $155 million and $160 million -- significantly better than the $148 million forecasted by Wall Street analysts.

 

That’s a very bullish outlook, proving that the fundamentals of this company are improving. However, CROX dropped a bombshell the same day by saying that its “turnaround” CEO John Duerden would resign as of March 1. That’s only a year after taking the helm of the company.

 

So the million-dollar question is whether Crocs can continue its recovery without Duerden. And I think the answer is “yes.” The new leader of the company will be current Chief Operating Officer John McCarvel, who has worked in Crocs' management for the past six years and is painfully aware of the company’s boom-and-bust history. I find it hard to believe he would be foolish enough to let the company collapse again after finally getting some momentum back.

 

What’s more, the hardest choices have already been made at CROX and now it’s just a question of transitioning from damage control and into growth mode. In just a few months after taking control of Crocs, departing CEO Duerden slashed costs, reached out to retailers and overhauled the company’s inventory scheme to deal with a glut of product. The latest earnings forecasts appear that Crocs has “right-sized” itself, and now it’s a question of being realistic about growth as the economy recovers and the business is returning to profitability. (Get an outlook on other big names in retail, including price targets)

 

Let me state for the record that I’ve been burned before on Crocs. I was bullish on the stock in early 2007 and watched it triple from my initial recommendation in a matter of months only to drop like a rock and give it all right back. I don’t recommend this stock again lightly -- and in fact, I wouldn’t seriously consider investing in CROX for at least a few days since trading volume has spiked and there’s a lot of froth out there. But as soon a trading volume subsides, Crocs should be a good buy. As long as the company isn’t being unrealistic with its guidance and continues to manage inventory properly, CROX stock should continue to rise.

 

At the time of this writing, Louis Navellier did not own shares of Crocs (CROX) in personal or client portfolios


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