Thursday, February 09, 2006
Crocs IPO
The problem with the Crocs IPO (CROX) is that the company is too faddish and too limited. This will probably turn out to be an example of a company that should have stayed private. It's like taking Napoleon Dynamite public because there selling a lot of 'Where's Pedro' shirts. Even Crocs makes a great shoe, it's too easily duplicated. If Crocs stay popular there will be knock offs and likely even outright counterfeits everywhere. Will people being willing to keep paying $30 to $60 for the name when the styling fad wears off and all that's left to fall back on is the comfort and convenience as hacking around shoe? Knock-offs ought to go for a fraction due to the simplicity of the design ease of manufacturing with relatively little manual labor involved. Crocs would have respond by drastically reducing prices. The benefits of issuing an IPO in such a case is that the executives, and venture capitalists, presumably would know this and hope to skate pass the lockup period and get out while the gettins still good.
The danger of shorting a stock like this, however, if your broker will even loan you shares, is that you have either be willing to cut your losses arbitrarily or stay short for a very long if perhaps the shoes reach phenom status overseas and sales go through the roof before the market can respond with competition. In the latter case one would have to be able and willing to tolerate the stock going against them by say as much as 100%, and waiting for as long as several years for the market to catch up and the stock to fall back down to perhaps the unshortable threshold, as many companies do, in the $4 to $6 range. In my opinion, this is likely where the stock will be in a few years from now, but it's extremely risky. It's about a 50/50 whether the stock will fall precipitously or rise equally as rapidly.
posted at 3:08 PM
