Crocs: Ugly Shoe, Uglier Stock Price

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CrocsUgly. Whimsical. Faddish. Colorful. Easy to hose off if you step in something unpleasant.

There are many ways to describe Crocs' (CROX) unique footwear. Here's another one: "hideously overpriced stock... again."

Deja P.U. all over again

Crocs clearly charmed investors with its quarterly results: Second-quarter profit increased 71.9% to $55.5 million, or $0.61 per share, and total sales increased 29.6% to $295.6 million.

Helping buoy the beastly shoes is Crocs' successful invasion overseas: Crocs sales in Asia increased 37.5%, to $121.9 million, and sales in Europe increased 50.4%, to $52.2 million. Based on all that news, the company's shares got about a 15% boost.

Crocs has certainly staged an impressive comeback since its near-death experience in 2008. But it's worth remembering how it became one of the hottest stocks around, with its growth fired up by its faddish appeal.

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There was some rationale for the hoopla back then: In 2007, annual revenue growth increased 138.9%, to $847.4 million, and Crocs generated $2.00 per share in profit.

Back then, investors bid up its shares to hideously overpriced levels, too. Then came 2008 and the other shoe dropped: Crocs' annual revenue fell 14.8%, and it reported a horrific net loss of $2.24 per share.

People who bought Crocs shares in early 2007 experienced a horrifying 95% drop in share price by the end of 2008.

You paid how much for plastic shoes?!

Clearly, Crocs has been able to put a much better foot forward in the present day, putting all that fuss behind it. It's now operating profitably and growing sales at a respectable clip.

However, investors are mistakenly attaching quite a premium price to Crocs. The company's shares are trading at 21 times earnings, which sounds awfully pricy, given its faddish nature and poor history. Compare it with some of its peers:

* Skechers (SKX) is trading at just 10 times earnings.
* Deckers (DECK), which makes the Teva and Uggs brands, trades at 23 times earnings.
* Steve Madden (SHOO) has a price-to-earnings ratio of 21.
* Even mighty Nike (NKE) has a P/E ratio of 21.

Can Crocs truly deliver on hopes for continued double-digit growth in sales and earnings? I'm sure there will always be diehard Crocs fans -- probably 5-year-olds and folks who stand on their feet all day -- but I don't see a sustainable growth story here.

Meanwhile, take the nasty economic environment (which seems to be getting nastier in the second half of the year) and the regularly nasty competitive environment surrounding footwear trends and fads, and I'm not a Crocs convert.

I hope investors are taking a clue from Crocs' history and won't get bitten again.

Motley Fool analyst Alyce Lomax owns no shares of any of the companies mentioned. The Motley Fool owns shares of Skechers USA.

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