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| Symbol | Sector | Return | Exposure | Trades | Last Trade | Status | |
|---|---|---|---|---|---|---|---|
| CROX | Footwear | -72.33% |
|
32 | 06-Oct-08 | Currently Holding |
20-Aug-08
CROX Rationale
Holding Rationale for CROX.
Valuation Completed: 8/20/08
Rating: Neutral
Comments: It is easy to see why the stock price has crashed. CROX was never prepared for the increase in business they received during 2007. Internal controls were incomplete and operational problems surfaced. As the economy has cooled and discount versions of their product arrived, CROX is left with a high cost structure, high inventory levels and questions over their future.
The positive for this company are that their core product is better quality than any of the discount versions on the market. For people who desire the better quality, CROX will be the option (thus creating a permanent client base). Further, the balance sheet is clean with solid liquid. Making a series a fair value adjustments, book value is in excess of $3 (vs. a reported book value of $5.40).
When deciding how to manage an investment in CROX, there is a great deal of uncertainty. The business outlook is opaque. As quarterly results come in, I see a number of accounting issues that make me uncomfortable. The lack of comfort raises red flags and suggests extreme caution. For these who already established a position, the book value of $3.25 should act as a floor. Coincidently, this same price is inline with a pessimistic outlook that does not see them reaching their 2005 income level (long before they became a hit shoe company) until 2011. A more reasonable yet cautious outlook has them losing money this year and not bettering their 2006 EPS until 2011. With that approach the shares are worth $7.50.
Therefore, for a current investor I recommend holding the shares, watching the business evolve and determining if fair value increases with improved prospects. For risk seekers looking to take a position, the current price level offers a reasonable chance for nice gains. Finally, the cautious should remain on the sidelines and attempt to buy the shares below $3.50.
Tagged Stocks: CROX
Posted at 14:54 in Holding Rationales | Permalink | Comments () | Top
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