None of that has mattered. Crocs (CROX) was a $50 stock on the eve of its report. One week later, CROX finished above $60 for the first time ($60.29). For investors and traders looking for a breakout to jump in, well, it's not buyers' conviction all over the stock. Only 5.4 million shares traded, the lowest in 10 sessions.
The last time CROX traded so lightly on an up day was July 19. That was followed by a down day and some slightly bullish trading leading into the Q2 earnings report. In this scenario, however, there isn't a report coming anytime soon, and CROX has a pattern of pulling back 10%, 15% and more in mid-quarter lulls. It would appear that this is a time to let the stock consolidate and see profits get taken. The chart is reflective of this and, when I looked the other day, quite similar to that of Under Armor. Plenty of upside for the past year, but always marked with periodic downturns.
August expiry will be around the corner soon enough. That should make things quite interesting for option players with Aug 60 calls and/or more. I'm no options trader and if I were, I'd play way out, five to six months. I'm a chicken most of the time who would rather just sit back and let the stock do all the work. CROX is up 50% since I first got in just three months ago. Can you blame me?
Looking back at the Q1 report in May, CROX gapped from $28 to $34 on 24 million shares, a number that was not approached again until last week's 21 million shares after the Q2 earnings report.. By May 2006 expiry (May 18), the stock closed at $38.
Volume intensified in early June, a month after earnings, to build a base in the $41-47 range. Despite bearish taunts about insider selling by CEO Ron Snyder and other executives, CROX bulls endured. A momentary dip to $40 came on June 27 and 28, a pullback of 18% from the high.
It took just seven sessions for CROX to bounce back up to a new high at $49. That was followed by a dip to $44 on July 20. Buyers never got a chance to buy shares that cheaply again. Four sessions later, on the eve of Q2 earnings, CROX was above $50. I jumped in an grabbed a few more shares to add to the ones I picked up in early June at $40 (pre-split $80).
With short interest at nearly 33%, Crocs crushed all estimates. With the exception of a minor pullback yesterday, CROX has traded higher in four of five sessions since.
So ... will CROX replicate last quarter's "behavior" or start a new trend? In both Q1 and Q2, guidance was raised, and with the potential of more institutional buying now, the stock could be in uncharted waters. Following the Q1 report, it took more than seven weeks for the stock to pull back.
Point A: Day before Q1 earnings report: $28.
Point B: Day after Q1 earnings report: $34 (+21% from Point A).
Point C: Post-earnings peak before pullback: $46 (+64% from Point A).
Point D: Lowest PPS on late June pullback: $40 (-13% from Point C).
Will the current PPS gain for seven weeks, as well? Hard to say. But if there's any recurrence of the gap up and a pullback, it might look like this:
Point E: Day before Q2 earnings report: $50.
Point F: Day after Q2 earnings report: $55 (+10% from Point E).
Post-earnings peak before pullback: if 64% is replicated (Point C), we would see $82 in September.
Possible PPS on first pullback: if -13% is replicated (Point D), we would see $71 at the bottom.
If the stock's pattern repeats, the PPS would be $89 on the eve of Q3 earnings. A robust, estimate-destroying Q3 would send the stock, if the Q2 behavior repeats, to $98 the day after the report.
Too bullish? Perhaps. Anything can look good on cyberpaper. But I would not bet against it, not after Snyder raised guidance. Takes a lot of balls — plus global expansion and revenues — to do that.
With a new, upscale line of footwear for women and a new endeavor (clothing) in the pipeline, CROX is doing exactly what it should: establish the brand and strengthen its hold over a wide cross-section of demographics. The Co has come this far without using a generic blueprint of costly mass advertising and celebrity representatives. The distribution system is a work of art, really, and the acquisition mindset of Snyder and his board of sages from Flextronics (a Co that wrote the book on buyouts and glorious stock propulsion) is a major plus.
No, the Co won't need a Michael Vick to pump (and deflate) sales, nor will it remain stagnant. This is not your normal footwear entity, and this is not your average leadership. Snyder is a man on a mission, and so are the people under him. They've proven this quarter after quarter after quarter. While most bears and shorts harp at the visual thought of Caymans — practically a testosterone-laden gag reflex every time — the rest of America and planet Earth continue to buy Crocs products for bottom-line reasons.
Comfort. Durability. Add style to the mix and the X Factor, Croslite™, for products beyond sandals, and the possibilities are off the charts. Croslite™ makes everything smell good.
I'm in. I'm so in.
Pupule Paul is long CROX.
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