Doubling up on CROX; Nutrisystem (NTRI) Losing Weight
February 20th, 2008 by 
CA Editors
Stephen Frankola sends: Crocs (CROX) released earnings after the bell, and even though estimates came in largely in-line, the stock tanked after hours. Margins were down (partially due to having to air-mail goods to retailers after the Mammoth sold out during the holiday season), but profits came in right around the street’s consensus. Crocs reaffirmed the full-year forecast, which is for $2.70 EPS. After-hours, the stock was trading around $27.
CROX grew revenues 99% in Q407… and will continue to grow (at a slower pace) throughout 2008, especially as they release their clothing line.
It’s unfathomable to buy such growth potential at a 10 P/E. When the earnings originally came out, I thought that these might have been the earnings that firmed investor confidence, as Buffalo Wild Wings (BWLD) were last week. That just wasn’t the case.
Once again, like BWLD, I got in a little too early (in the mid-30s for CROX). I doubled my position today at $28. But investors are discounting another cheap growth stock too heavily, and CROX should take off soon.
Also, after the bell, Nutrisystem (NTRI) reported earnings and guidance that didn’t please the Street. The stock has lost about 70% of its value since the summer, when it traded around $70/share. It ended the after hours session at $18, after trading below $17 for a period of time.
The bad NTRI news? 2008’s earnings look likely to decrease from 2007’s numbers, and negative earnings growth certainly isn’t a good thing. Nutrisystem blames this on difficult macroeconomic conditions, which is a convenient, albeit reasonable, excuse.
It should not be ignored that Nutrisystem lowered projections to $130 million in EBITDA this year; but based on the 35 million outstanding shares, that breaks down to nearly $4 per share in earnings. Considering NTRI is now an $18/stock, the multiple is about 5x.
The downward trend is certainly concerning, but short-term problems and fears about future expansion have punished NTRI too much. I’m going to look into some LEAPS for NTRI - maybe just January ’09s, because with such a low multiple, I don’t think NTRI can stay depressed for that long.
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February 20th, 2008 at 3:52 pm
The problem with Crox is that they were solely known for a decent pair of comfortable slippers (or flip flops). People in the health care industry used to tout their products, and then celebrities were caught wearing them. The thing is, it’s a fad. I don’t know anyone in healthcare that wears them anymore, and most people that have worn Crox are now buying cheaper sandals, that are just as good. I’ve tried Crox, and I don’t see what the hype is about. The diversification of their product line is necessary, but I think it will come at a bad time. The consumer is definitely in a recession, and two specialty retailers have already filed for bankruptcy today — the more well known company being the Sharper Image.
Crox reminds me of IOMega, the one hit wonder. IOMega came out with the ZipDrive 10+ years ago, and the stock zoomed nearly 100x its low. After the hype settled, the stock tanked, inventories build, competition came out, people didn’t see much value in a ZipDrive anymore, and the company tried to diversify. In the end, the stock is now trading near its lows 12 years ago. Is this Crox part deux? Possibly. I mean, really, in the end, they are just slippers. You can get a good, and comfortable pair at Ross Stores for a huge discount.
February 20th, 2008 at 3:56 pm
OOps, I meant to say, IOMega part deux.
February 20th, 2008 at 6:29 pm
@ MSG - Good comparison to IOMega.
NTRI at this stage does look cheap but does it deserve to get cheaper? Negative subscriber growth is a very hard situation to turn around.
February 20th, 2008 at 6:29 pm
I think CROX is just like HLYS in that you need to take a very long, hard look at the estimates and whether or not they are attainable - it requires much more than just saying “this trades at 10x forward earnings and its growing 35%” because the nature of fads is that they are unsustainable.
In other news, Zack’s is calling CROX a buy because it trades at a forward multiple that is a discount to the company’s long-term earnings growth rate of 20%. Um hm.
February 20th, 2008 at 7:44 pm
Better leave a 30% margin of safety.
February 20th, 2008 at 11:32 pm
Good points by everyone… both are very risky plays.
On a personal note, I have a friend currently on Nutrisystem (actually because his dad played football with Dan Marino) and it’s apparently working very very well. The product seems solid, but that’s just one part of the equation.