Crocs Chokes

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Does Crocs (Nasdaq: CROX) really have a sustainable long-term growth story? Today's news gave more credence to some bearish investors' negativity.

True, Crocs' third-quarter results were impressive, with net income more than doubling to $56.5 million, or $0.66 per share. Revenues were similarly strong, growing 130% to $256.3 million. However, if you compare this balance sheet to its year-ago counterpart, inventory has increased 297%, far outpacing Crocs' increase in sales; meanwhile, accounts receivable swelled 165%. Both could be red flags.

The reason Crocs' shares have taken a substantial tumble, though, is because its guidance fell short of Wall Street's expectations. As with many premium-priced stocks, missteps can shake confidence, causing such a stock to sell off because it was so pricey to begin with.

And let's not forget the nagging concern that makes many people bearish on Crocs: Is the wild popularity of its brightly colored shoes just temporary? After all, sometimes what looks like a sustainable growth story merely reflects a fad. Heely's (Nasdaq: HLYS) recent wipeout seems like a good example.

I pondered shoe fashion when Steve Madden (Nasdaq: SHOO) put itself on the block, since these companies might be particularly difficult to navigate, fashionwise. When a trend comes to light, others will try to jump on the bandwagon; consider Skechers' (NYSE: SKX) recent launch of shoes with more than a passing resemblance to Crocs.

My opinion on this stock could attract mounds of hate mail within minutes of this article being published. But I'll put myself out there and say that even with a 30% tumble today, Crocs shares still don't tempt me. I know some people hate it when you disagree with them, but at some point, we have to acknowledge that fads come and go, whether they're tulips, bell bottoms, Beanie Babies, or the South Beach Diet. (Let's not forget that South Beach and Atkins made some people bearish on bread a few years back.) 

Of course, some people will always like those things, but the ubiquity -- the craze -- never lasts. Maybe Crocs will become a footwear staple, but I'm not banking on it. I'm steering clear of an investment idea with a few too many holes in it.     

Try these Foolish articles on for size:

• Fool Anders Bylund might feel smug now, because he nominated Crocs as The World's Scariest Stock a couple of days ago.
• I pondered the sometimes uncomfortable world of shoe fashion.
• Long-time Fool Rick Munarriz was bullish on Crocs in this video.