Friday, January 18, 2008

Bookkeeping: Closing Crocs (CROX)

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And on that Under Armour (UA) note, I am going to close Crocs (CROX).

I will be looking a sizable loss here, about $8700 (roughly 0.8% of fund profit) and selling my 2% positions (700 shares) of Crocs in the mid $30.00s range. This stock was actually an early winner for the fund, but since it's last earnings report the stock has been in a death spiral, and catching the falling knife has been a useless endeavor. My rationale for holding is the "value" in the name, with $2.00 EPS in 2007 and $2.70 projected in 2008. Meaning at $30, it trades at 11x 2008 estimates. But as we just saw with Under Armour (UA) no price is cheap enough as no earnings are safe in retail. I actually like Under Armour far more as a long term franchise (3+ years out) so the magnitude of this miss in UA really has to make me reconsider the landscape in retail. I thought it was bad in retail... I've been negative on retail since the get go in August, but I thought certain franchises were above the fray due to their secular growth i.e. Under Armour. Now it appears things are so bad, nothing will be spared. So I have to change my views.

I will place this sale under a 'better to be safe than sorry'. Looking at a chart the stock has bounced off $26 multiple times in the past few weeks which shows decent relative strength considering how bad the market has been, but any sort of news akin to UA will make $26 floor useless. In the mid $30.00s range Crocs is 17% higher than it was during the bottoms it has been hitting the past few weeks so at least this appears to be a slightly better sell point than panicking on any of the patent news or other rumors passed along of late.

The upside for Crocs is probably upper $30s so I am going to foresake a potential gain of 20%+ to protect against a loss of 20%+ if we see similar issues to Under Armour. That said Crocs is far cheaper than Under Armour, but in a market full of fear, valuation arguements are moot.

Again, let me say I could very easily be wrong with this call, as Crocs is very "cheap", and even mildly good news with a stock so beaten down will push this type of stock up very fast. But safety first. And I am not officially out of all retail. I do expect on any rally for retail stocks (which have been obliterated - Will There be Anywhere Left to Shop in 2010?) to see huge % gains, but at this point they are like buying home builders. A long secular down market interspersed with massive short covering rallies. Not my cup of tea. Sometime a year or two from now this group will be a great buy - but until then it appears outside of Gamestop (GME), Costco (COST), Walmart (WMT), and Best Buy (BBY), consumers are done.

No positions


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