Crocs Marching to $100

Stock quotes in this article: CROX , SBUX  

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.

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At the time of publication, Markman was long Starbucks, although positions may change at any time.

Jon D. Markman is editor of the independent investment newsletter The Daily Advantage. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback; click here to send him an email.





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