Crocs Marching to $100

Is that possible? Yes, actually it is. Let's just look at the U.S., where the footwear industry sells $46 billion worth of goods, split 60%-40% between fashion and athletic. Of the former, about 55% is shoes, 25% sandals and 21% boots. J.P. Morgan analysts figure Crocs' molded shoe category fits somewhere between shoes and sandals and therefore has a $21 billion playground in which to wrest market share from incumbents.

It's not unusual for a strong company to grab as much as 10% of a category -- Nike, for instance, owns 19% of all athletics sales -- so figure the company could theoretically do $2 billion in sales in five years, up from $452 million currently.

Note that the company just added a women's fashion line and add in the fact that the company is already selling very well in Europe, Japan and Brazil. Slap on some apparel and accessories sales -- the company recently hired away the top designer at athletic apparel maker Under Armour to jump-start that side of its business -- and you can see there's an opportunity for a very large business here.

If it can achieve $3 billion in worldwide sales, and earn a price/sales multiple similar to that of Decker at three times, then you could be looking at a $9 billion market cap by around 2010, which would be a triple from the current price. J.P. Morgan actually thinks $10 billion in sales is ultimately achievable on the distant horizon.

Even at the current quote, it is only trading at 17 times my 2008 estimate of $4.75 in earnings per share despite growth north of 30% a year. That is incredibly cheap for an emerging category-killer. Figure that Crocs will shoot to at least $100 by the end of the year. My target is $120 by mid-2008, about 40% higher than the current quote, so slip on a pair and buy some shares on any dips to come over the summer.