My friends analysis of why he bought CROX and why it went up 20%...

[ski]

*Anyone care to comment on this analysis? Is this sufficient information to buy a stock? Do you feel he touched on all the main reasons the stock went up? FWIW he told me all this before the stock skyrocketed.

The reason the market didn't like it was because they are butt ugly (go to the web site). They are plastic, colored beach shoes mostly for kids. The general thinking was that this is a summer fad. Once it gets "old", it will die very quickly and CROCS will not become a major shoe distributor.
Basically market thought it was a flash in the pan fad and when the stock was high, the pro's shorted it and just waited for the fall expecting to make windfall profits when the stock went to zero.

Why they were wrong. As I read up on it I learned several things. First they exceeded market expectations with every quarterly report. They basically sandbagged the predictions so they could beat them. But they beat them pretty good each time. Second, as I read up on them, I found they were not
plastic but a proprietary resin which CROCS bought the patent for. The resin molds to people's feet, so the shoe is extremely comfortable. Second, the resin is waterproof, so they are perfect beach shoes. Comfortable, you can
get them wet, sand goes out through the holes...perfect for the beach.

Next, they are skid proof. Perfect for boating. AND I read where orthopedic surgeons were wearing them during surgery AND prescribing them as orthopedic shoes for advanced diabetics who often end up needing amputations because their feet and legs decay. Next, they got licensing agreements with MULTIPLE corporations including colleges, NASCAR and the NFL. Probably others too. What that means is that they will eventually come out with CROCs for U of I, CROCS for Ohio State, CROCS for Green Bay Packers, etc. Basically CROCS in team and college colors. That will more than likely get the college kids to wear them and thus start a college fashion trend. I also checked stores. I had (a friend from U of I) call stores and visit them in Urbana and ask about CROCS sales. They ordered loads.

I went to the Carribean on the cruise. Every shore excursion I went to several stores and asked about CROCS. They couldn't order enough. In most shops it was their largest profit makers. Also, I asked Linda the school teacher girlfriend to let me know if her kids
stopped wearing CROCS (sign of a fad). She said they loved them and wore then to school as soon as it got warm (fad not dead). Also, on the Rosie O'Donnell birthday show, she gave all her audience a present...2 pairs of CROCS. Finally, I knew the short sellers would get squeezed. What that means, when you go short, the higher the stock goes, the more you lose. Just like you have a stop sell lower than what you bought a stock for when you go long, so short sellers have stops to BUY a stock if it goes up. Just normal stop management except on the short side. But what that means is, when a stock reaches a short sellers upside pain threshold, they have to buy the stock to cover their short. This helps to raise the price. So the price gets another upside goose, and now the next short seller's stop is hit. On it goes in a wonderful domino effect until all the stops are taken and the stock reaches a zenith. I knew this would occur during CROCs earnings call, since I knew after talking to everyone they would kill the earnings expectations. I sold because the stock went up like 20% and all the short sellers stops were hit.

The stock should be at a temporary high and start to pull lower. I mean, with these results and how much the stock went up, what is left for upside?

[dazraf69]

Seems good. Some would argue that further analysis would be needed but this seems very similar to what Peter Lynch wrote about in his books. A friend argued a similar issue with Apple. He mentioned to me how in a our High School where we teach of 3,000, just about every student had an ipod. And that last year that was not the case. He confirmed the same thing at a number of other schools and backed the truck up on Apple with success. Your friend was wise to take profit but trying to time when to sell based on shorts covering is an impossible task. In addition, if your friend felt there was still upside to the company, then perhaps value was loss in the long run by selling in the short term.

I take it you trust your friend but make sure to always confirm info on your own.

[DcifrThs]

everything until the trip to the carribean seems to be public information. i.e. your friend read it someplace.

if he gained insight in the carribean that others would ahve to work hard to get, then he has an advantage and that edge should be enough. just listing public reasons why crox are good isn't sufficient. if your friend (or you) believes in all of that info, and that it is not fully discounted in the price, then that too is reason enough to buy.

everything else is info that all participants have access to.

also, if you're friend (or you) were as sure about the temporary high as everything else, why not go short now?

Barron

[ski]

[ QUOTE ]
everything until the trip to the carribean seems to be public information. i.e. your friend read it someplace.

if he gained insight in the carribean that others would ahve to work hard to get, then he has an advantage and that edge should be enough. just listing public reasons why crox are good isn't sufficient. if your friend (or you) believes in all of that info, and that it is not fully discounted in the price, then that too is reason enough to buy.

everything else is info that all participants have access to.

also, if you're friend (or you) were as sure about the temporary high as everything else, why not go short now?

Barron

[/ QUOTE ]

This may be a very complicated question but

How do you tell if something is "fully discounted in the price"?

I'm not sure if he is considering shorting it but he said he is considering rebuying stock in a little while after the price drops like he feels it will.

[ahnuld]

ski, that would involve building your own model of future earnings based on the publicly available info, which is a big process. A quicker way is to compare valuation based on quick earnings estimates.

[spino1i]

This is fairly strong analysis, though you are underestimating how much the pro's know about this stock. I am sure they did more research than you think.

[DcifrThs]

[ QUOTE ]
This is fairly strong analysis, though you are underestimating how much the pro's know about this stock. I am sure they did more research than you think.

[/ QUOTE ]

by "fairly strong analysis" do you mean "good summary of almost entirely public information?"

Barron

[AvivaSimplex]

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.

[AvivaSimplex]

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by "fairly strong analysis" do you mean "good summary of almost entirely public information?"

[/ QUOTE ]

Just because the information is public doesn't mean the market is interpreting it correctly. Essentially you're espousing the semi-strong form of the efficient markets hypothesis, which is pretty clearly false.

[bmxicle]

[ QUOTE ]
[ QUOTE ]
by "fairly strong analysis" do you mean "good summary of almost entirely public information?"

[/ QUOTE ]

Just because the information is public doesn't mean the market is interpreting it correctly. Essentially you're espousing the semi-strong form of the efficient markets hypothesis, which is pretty clearly false.

[/ QUOTE ]

Yes, but the analysis op presented doesn't say whether this is represented by the stock stock price, he simply says that the stock should have value, not that it is undervalued.