Crocs (Nasdaq: CROX)
continued their remarkable rebound, only a year after many had
assumed that the once-hot footwear maker would not survive much
longer. An impressive quarterly report released Thursday evening
pushed shares up +8% in Friday trading. Crocs' plastic shoes are
either loved or loathed, with many deriding them as a mere fad. But
the company's supporters were undercounted, and are now buying new
pairs of Crocs shoes at a brisk pace.
We got a sense that things were turning around when Crocs reported
a surprise profit for the September 2009 quarter. Then again,
summer time should be profitable for this maker of outdoor-oriented
footwear. The December quarter, which is seasonally weak, showed an
expected loss, but Crocs just surprised the Street with
unexpectedly robust first quarter results. Sales jumped +24% from a
year ago, and profits of $0.07 a share were well ahead of the $0.02
forecast. That should set the stage for even more robust profits
now that Crocs is in its seasonally most important quarters.
Going into the quarter, investors were looking for Crocs to post
+5% to +10% sales growth throughout this year. Now, those
expectations are likely to sharply rise. The current 2010 consensus
profit forecast of $0.30 a share looks to double as analysts revise
their models. Profits for 2011, even if the current sales momentum
moderates, could exceed $0.75 a share.
Crocs' sales strength is due to a belated decision to expand into
international markets. Those efforts are now bearing fruit as sales
in Europe and Asia rose +34%, and +40%, respectively. Sales in
North America rose a more modest +10%. Notably, interest in Crocs'
shoes appears to be just building in these foreign markets, so
those growth rates may have some staying power until the markets
Even though shares have already sharply moved up in the last year,
they still hold appeal, trading at about 13 times 2011's expected
profits. A multiple of about 20 seems more appropriate for a
company with a strong brand, a loyal customer base and growing
international prospects. That target multiple represents +50%
upside beyond today's impressive move.
Company Name (Ticker)
|Crocs (Nasdaq: CROX)
|Biodel (Nasdaq: BIOD)
|*Based on consenus estimates
prior to recent earnings release
Insulet (Nasdaq: PODD)
, a maker of insulin infusion systems for diabetics, is a leading
gainer Friday, posting a +7% jump on the heels of robust quarterly
sales growth. First quarter sales rose +67% from a year-ago,
continuing a long-standing trend. Insulet's insulin pump and
monitoring system is very user-friendly, and the company is
starting to take market share from the major players such as
Johnson & Johnson (
. Fairly low penetration rates coupled with an expanding sales
force and international expansion have led many to anticipate
continued strong sales growth for Insulet, perhaps around +40% both
this year and next.
Gross margins are expected to rise from their current 40% to around
50% within a year, but that doesn't mean the company will be
profitable. Operating losses are expected for quite some time to
come. So how do you value a fast-growing stock that has no earnings
power in evidence just yet? Many investors compare the market
capitalization to the annual revenue base, known as the
price-to-sales ratio. By that measure, shares trade for about six
times projected 2010 sales and 4.5 times projected 2011 sales.
That's not especially high for a company posting such rapid growth.
Trouble is, a lofty price/sales multiple is usually associated with
companies with gross margins in excess of 70% or even 80%.
Insulet is building a very appealing business, but it's fair to
expect growing pains. One of these days, the company will post a
hiccup in quarterly sales, and that will likely create a chance to
get into this stock while it's temporarily discounted. Insulet is a
name to put on your watch list for a pullback.
Speaking of companies in the insulin management space, shares of
Biodel (Nasdaq: BIOD)
surged more than +10% during Friday trading. You would probably
assume the developer of novel diabetes testing and treatment
products posted impressive sales results. Actually, sales were
zero. The quarter held no positive "surprises," but management did
discuss a willingness to partner up with larger pharmaceutical
companies. That news implies that a nice cash infusion may be
Analysts at Wedbush Morgan think Biodel is facing a potential $900
million revenue opportunity -- seven times the company's current
market capitalization. As with most biotechs, this is highly
speculative, but it does appear to be a fairly well-kept secret
ahead of potential partnership announcements.
-- David Sterman
Disclosure: David Sterman does not own shares of any security
mentioned in this article.
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