Re: My friends analysis of why he bought CROX and why it went up 20%..
This is a good analysis. CROX has been on my radar for a potential short. It's clear that the shoes are a fad. The question is how long it will last. My guess at the beginning of the year was that this year would be the peak for sales--clothing trends tend to last about 3 years. I still believe that.
Even if Croc-style shoes continue to be popular for many years to come, the company faces problems in that people will only need to buy a couple pairs at most, and that it's pretty easy to imitate. I don't believe the patented resin is going to be that much of a competitive advantage.
The main question for the future of the company is whether they can use their money and high share price to diversify for the inevitable slowdown. Management sees this issue and is trying to acquire and develop new product lines. I can't really tell if they'll be successful.
The stock is certainly not a buy right now. PE of 40 is way too high. I think a fair price would be about half that. Not to say it can't go up further, but there's no compelling valuation case to be made for a higher price. On the other side, I'm not certain enough of a collapse to go short or buy puts right now.
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