What happened

Shares of Crocs (CROX -1.97%) trounced the market this week. The stock gained 15% through Thursday trading, according to data provided by S&P Global Market Intelligence, compared to a 4.4% rise in the broader market. That move didn't erase much of the short-term losses that investors have seen with the apparel retailer, though. Shares remain down by nearly 40% in 2022.

This week's rally reflected the judgment on Wall Street that this wider 2022 stock-price slump might be overdone.

So what

Crocs' latest earnings report contained some good news about the business, after all. Sales rose 51% to a record $964 million in the selling period that ended in late June, management said in August. The footwear specialist remained solidly profitable, too, despite soaring expenses.

But slowing growth and elevated inventory levels sparked a sell-off in the stock as investors worried about a potential recession on the way.

Wall Street became less pessimistic about this prospect over the last few days; major indexes all rose sharply. Given its big declines so far in 2022, it is no surprise that Crocs saw an unusually large rebound as sentiment shifted back toward the positive side.

Now what

As a consumer discretionary business, Crocs will likely continue to make exaggerated moves in either direction when investors become more (or less) optimistic about economic growth trends. In that context, it makes more sense to focus on its business fundamentals. Inventory and pricing metrics will be critical to watch its Q3 report later this month, for example.

If Crocs can show steady sales growth amid price increases, then the stock might continue this week's rally deeper into 2022. On the other hand, elevated inventory and slowing growth would portend a tough holiday shopping season ahead for the footwear maker. In any case, investors should expect more volatility ahead for Crocs' stock.