A company revises Q3 guidance a few weeks before earnings. They revise revenues down 2% and EPS down 20%. The firm also revises next quarter growth from consensus 23% to low teens (probably 14%). However, Q3 this year sales growth is still up 27% versus last year Q3. The firm also has seen a 30% increase in wholesale backlog, pointing to significant longer term strength.

Clearly, more information is necessary. However, based off of this information, would you imagine this stock to trade up or down?

Down, surely. Short term isn’t nearly as pretty as thought. But how about down by a measure of 40%.

As I’m sure many of you are well aware, Crox got crushed on October 18th because of their revised earnings announcement. I STRONGLY disagree with the move and think its is incredibly overdone. The company and products themselves are not really that intriguing to me… in the next 10 years I wouldn’t be surprised to see them out of business. However, this revised announcement doesn’t change that. 3Q11 revenue was supposed to be $280MM – the co. is expecting $273-$275 instead. No big deal. However, the kicker is that margins will miss widely – EPS was revised down from 40 cents to 31 – 33 cents. This is a  20% drop. That’s significant. Additionally, next quarter growth is about half as good as expected. However, the stop has traded down from $27 to $16 that’s nearly 40% even in the face of solid quarter over quarter growth and strong backlog. I’m not a long term bull on crox. Insider selling is significant – nearly 400k shares in the past six months. Additionally, management has proved to be incompetent. However, barring a catastrophe in their conference call this week (which, again, given management’s track record, is entirely possible), I think it trades higher.

Wall street and money managers act very interestingly. Imagine you manage money and have some shares of crox at 21. You went from being a big winner to being a big loser. You are also trailing relevant benchmarks this year (just like MANY others). Your sell side salesperson calls you and tells you “listen – you’re behind on the year. The sell-off is clearly overdone. Long term the company is completely fine. They are still growing at a nice pace and did much better than last year at this time. The company is 86% owned by institutions, 4% by insiders, and 7% short. Clearly, being long is smarter. Other institutions will buy up tons of shares to average down their cost and punish shorts. This is a great way to lower the gap on your under performance.”

Thus, I will be watching closely for management not to embarrass themselves on this week’s conference call, Thursday after hours. If so, I believe CROX is a solid buy.

If you’re interested, check out these research reports. Click the link with the same title on the subsequent page to load them.
sn crox
SA crox report

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