Crocs Inc., maker of the trendy plastic shoes I see worn everywhere by kids and physicians alike, has had quite a run lately. After almost a 400% increase in price over the last year, the stock enjoyed another bump last week after reporting a massive 200% increase in 2nd quarter earnings. And, as Georges Yared notes, investors have good reason to be excited: the company enjoys a generous operating margin of around 30% - quite substantial for a young company which is still growing (almost double that of its peers in the footwear industry). In addition, the company has plans to expand its product line to include clothing and backpacks, and has been using capital to make key acquisitions such as the one announced today (Crocs to Acquire Bite Footwear).
Still, at almost $57 a share the stock trades at a very high 39x trailing 12 month earnings. Maybe it’s because I lean more toward value investing, but I have many reservations about paying this much for a stock, especially if it has to do with a trendy apparel item. Further, while insider selling of company stock can happen for a number of reasons, I don’t like to see executives paring their positions. This seems to be the case, as the management team has been exercising options and selling shares in June and July (including the CEO and CFO). The stock may continue its meteoric rise, but I think it is due for some profit taking.
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