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Jason Kelly of The Kelly Letter Jul 4, 2008 Email this article to a Friend  Printer friendly page

There's a debate raging as to whether Crocs, maker of the famous Croslite clog, is a dead fad or a value at its current stock price just over $7. The stock is down from $75 last Halloween, but the business sports an operating margin of 23%, revenue growth of 40%, insider ownership of 11%, and an impressive line of footwear beyond the original clog - it even includes women's shoes with heels. Look at all the styles at the Crocs website.

Here at The Kelly Letter, I began building a position in Crocs last month to howls of protest from some and cheers of encouragement from others. Those protesting said the original Crocs clog was a fad killed by cheap imitations. Those cheering said the original clog itself was no fad because it's very comfortable and, furthermore, the expanded line of styles speaks to the company's long-term plans and prospects.

I decided to start buying shares because it looks like Crocs is making strides towards establishing its name as a desirable brand. There will always be knock-offs, but are they as good as the original?

Where I live and work in Japan, the knock-offs have shown up from China but they feel different. People who've gone on comparison shopping trips for me reported that true Crocs are softer both in terms of pushing down on them with one's feet and in terms of rubbing their surface with one's fingertips. The Croslite material is better.

Too, teachers and mothers at schools near my office report that mothers do not want their children seen in knock-offs. They buy for them either real Crocs or an entirely different kind of shoe, not an imitation. That's branding at work.

These are anecdotal observations, but they're useful. I'd like to know the word on the street from other parts of the world as well. If you have access to a shopping area and can compare Crocs with imitations that are available, please send in your impression. I'd also like to hear what people say in your neighborhood. Is there value in the Crocs brand, or is it just a maker of a fad shoe that's now been flanked by knock-offs?

by Jason Kelly (The Kelly Letter)

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