The Stockmasters highlight this article from TheStreet.com today, suggesting that fad-footwear maker Crocs (CROX) is worth picking up, as shares make a new 52-week low today under $9 - quite a fall from the once-upon-a-time $75 high. As that kind of fall insinuates, pretty much any speculation as to a turnaround has resulted in the person getting their position crushed; thus, it’s been good to be negative on CROX.

At TheStreet.com, author Robert Marcin says that CROX’s decline is the result of a big hiccup in inventory, and that the stock could soar if the company gains traction in huge overseas markets, such as China. Sure - if you suddenly get support from a small fraction of 1.1 billion people, you have a large customer base. But isn’t the China argument overused at this point for almost any company, and doesn’t the entire idea of Crocs “reigniting” its once-strong domestic growth reek of wishful thinking? While I understand that CROX looks cheap relative to its previous inflated prices, on a net adjusted book value basis (taking hard assets and applying a 25% discount to inventory and a 50% discount to PP&E, less all liabilities) CROX is still trading for well over 3x book. Yes, CROX has lost almost 90% of its value off the 52-week high, but that doesn’t mean the stock is automatically in the bargain bin right now.

My other qualm is the idea that Crocs’ management is going to start wowing the Street with consensus-beating numbers. The analysts have taken the axe to near-term earnings estimates, but I think the out-year numbers still haven’t been cut enough. I don’t think that really matters all that much, because CROX is trading at about a 6x trailing P/E and even fairly large profit contraction will still leave the company in the mid-double digits, but the fact that there is still some optimism that CROX could bounce back and post solid results means that the bottom might not be in yet.

I’ve been skeptical on CROX for a while, and see no reason to change my view now. It was, and still remains, a stock for speculators. Marcin admits this isn’t a “widows and orphans” safe bet, but I still think he underestimates the speed with which the fashion current can cut when you’re dealing with a trendy (or formerly so) product.

This all wraps in with a simple thesis that I have - when a company makes the transition from value to growth, the gains can be enormous. When the reverse is happening, stand clear and watch out below, because the stock will likely fall much more than anticipated, and any upside on a turnaround seems to take much longer to realize than planned.

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