Why Crocs Shares Nosedived

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Footwear retailer Crocs (Nasdaq: CROX  ) stepped on and crushed all hopes and dreams of a good quarterly report last night, subsequently sending its shares down as much as 22% during the trading session.

So what: For the quarter, Crocs reported an 8% increase in revenue, to $295.6 million, and a profit of $0.49, a clean $0.06 better than expectations. However, Crocs also noted that weakening demand in Asia, especially from Japan, pointed to a cautious fourth-quarter, where the company expects to report break-even EPS. Wall Street had been looking for Crocs to earn a profit of $0.10 in the fourth-quarter. In response, Sterne Agee downgraded Crocs to "neutral" from "buy," and reduced its EPS forecast for the remainder of this year and next year.

Now what: Will Crocs ever escape the fad label? I'm not quite sure. I've had the same concerns about its rival Deckers Outdoor (Nasdaq: DECK  ) for years. It, too, pointed to slowing demand overseas, but at least it's been making acquisitions to help diversify its footwear portfolio. Crocs doesn't have nearly that same diversification to fall back on and, unfortunately for shareholders, its earnings momentum is rarely consistent. Even at seven times forward earnings, I don't consider the company to be an intriguing value.

Craving more input? Start by adding Crocs to your free and personalized Watchlist, so you can keep up on the latest news with the company.