The Battle Over Crocs

For the immediate future, investors will be focusing on the company's fourth-quarter earnings announcement on Feb. 20. Guidance is for revenue of $92 million to $95 million, with earnings per share in a range of 40 cents to 43 cents. Consensus estimates are for earnings per share of 43 cents and sales of $96.47 million.

Based on recent history, there is reason to believe that anything less than a third-straight upside surprise would disappoint investors. On Nov. 2, the company beat estimates by 12 cents, posting earnings of 53 cents a share vs. expectations for 41 cents. Revenue was also well ahead of estimates: $111.3 million vs. $92.2 million. Revenue and earnings for the company's second quarter came in 32% and 56% ahead of consensus estimates, respectively.

Anyone currently invested in or considering going long Crocs should know that this is an extremely risky play because of the valuation and the fact that so many short-sellers are looking for any sign of a slip in the company's progress (and will immediately make sure everyone is aware of it). Then again, shorts have represented about a third of all positions for almost six months, only to fail in convincing others to sell the stock.

Although the upside opportunity has decreased since I first highlighted the stock, I would advise against taking the short side along with so many others, especially on a simplistic "the multiples are too high" thesis. I would rather remain long and wait for a short squeeze on positive comments about the company's new product lines before taking profits.

With sentiment seemingly at an all-time high, I would not be shocked by a short-term selloff to $50 next week, even if earnings come in well ahead of expectations. In this case, the stock would be attractive for an entry or additional purchase. The only real certainty, however, is that CROX will remain a battleground stock suitable only for aggressive investors willing to pay close attention to the company's growth prospects.

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