Small-Cap Spotlight: A Look at Crocs and Dendreon

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Curzio: Chew on Crocs

Crocs(CROX Quote), the maker of the comfortable yet aesthetically challenged clogs, has been on a tear since January, climbing 80% to a recent $80, in the face of heavy shorting. Below, Frank and Larsen debate if this shoemaker deserves a spot in your portfolio.

The company has defied most critics who claim that its valuation is too rich and its shoes are a fad, and I believe the stock is a buy in the short-term.

At its current price, Crocs' market cap is twice that of competitors Timberland(TBL Quote) and Skechers(SKX Quote). From a valuation perspective, shares are trading 20 times next year's estimates of $3.80 -- just slightly ahead of the industry average of 18 times. But Crocs is expected to grow earnings in excess of 25% over the next three to five years, according to Capital IQ -- a much higher rate than its competitors. This growth trend is an indication that Crocs is not as expensive as some analysts suggest.

Crocs' shoes are flying off the shelves, domestically and internationally. Its products are now sold in 37 countries through more than 8,000 international retail-store locations. In 2005, international sales accounted for 7% of total revenue, and in 2006, this number swelled to 32%. It would not be surprising to see international sales grow to 50% by next year as new products hit the market.