Let me start out with a couple of blasts from the past:

  • Pet Rock
  • platform shoes
  • jelly shoes
  • slap bracelets
  • L.A. Gear
  • Beanie Babies, Reebok Pumps, bell bottoms, lava lamps, Koosh balls ...

Don't laugh; Pet Rock made Gary Dahl a millionaire basically overnight! Now don't get me wrong, I don't think that I'm making any novel point here -- on the Motley Fool CAPS page for one-star-rated Crocs (NASDAQ:CROX), the two most used words are probably "fad" and "overvalued." But fad or not, Crocs is selling at a pretty healthy multiple that leaves little room for the company to have any hiccups.

Spitting into the wind
Looking at Crocs' performance since inception is enough to perk up anybody's ears. In 2002 the company made a meager $24,000 in revenue, but had grown that figure 452,321% to near $109 million by 2005. Gross margins increased from a slim 24% in 2003 to 56% by 2005. The bottom line has followed suit, and after being unprofitable through 2004, the company put up a 25% operating margin and a 16% net margin for 2005.

Performance hasn't been letting up recently, either. For the nine months ended September 30 revenue was up over 200% year over year and EPS was up 173%. Though margins have steadied, operating margins were up a bit further to 27% and net margins to 18%. It doesn't sound like management is running out of ideas either -- they are busy broadening the market and introducing new flavors of the closed-cell resin shoes.

Tick, tick, tick ...
The popular question when it comes to Crocs, though, is just how long the interest in the funky shoes lasts. Until the fad starts to fade, the company, and by extension the stock, should do quite well. But what happens when consumers start losing interest or the marketplace becomes too flooded with imitators? As soon as growth falters there will likely be an all-out exodus of the momentum investors who were riding this up. Close on their heels will be the high-growth investors, and accompanying both groups will be timid investors who aren't really sure what's going on, but don't like that they're losing money. Any investor that could guarantee that they'd be the first out the door will do fine, but for the rest of the crowd it likely means trouble.

On the other hand, I could be totally wrong and Crocs could be an enduring marriage of utility and unique style that has a place in everyone's shoe rack. Even then, though, the company has a high bar set for it by the current stock price. To support the current $42 price tag, I estimate that the company would have to follow up the great growth of the last three years with average growth between 25% and 30% over the next five years.

While maintaining average growth over 25% for nearly a decade is a daunting task, there are some great examples out there of companies that have done just that. They include well-known retail names like American Eagle Outfitters (NASDAQ:AEOS), which has grown net income from $5.9 million back in the 1997 fiscal year to $344.7 million over the last 12 months; Abercrombie & Fitch (NYSE:ANF), which has net income for the last 12 months that is 2,618% higher than it was back in 1996; and Ann Taylor (NYSE:ANN), which has performed similarly well over the past decade.

My question to you, then, fair reader, is whether Crocs could be grouped with these names -- or even with another footwear name, Timberland (NYSE:TBL).

While I can't disagree with CAPS investor Docendo's statement that "It really doesn't matter what the market thinks, people still buy stuff when it's no longer in with the fashion police," Crocs' current price requires that those crazy zapatos stay in fashion for a good long while.

The company may not crash and burn like some suggest, but I'm looking to outperform the market, and I don't see Crocs doing that for me over any extended period.

So will Crocs turn out to be nothing more than a big crock in 2007? Or do you think I'm completely off base and that Crocs is the next Nike (NYSE:NKE)? Head over to the Motley Fool CAPS community and let the world know by giving Crocs a big thumbs down -- or, if you must, a thumbs up.

CAP it off with some more Foolish reading:

Want to go back to the beginning of our Worst Stock for 2007 tournament? Right this way.

Fool contributor Matt Koppenheffer does not hold any position in any of the companies mentioned, nor (surprisingly) does he own a single pair of Crocs shoes. American Eagle Outfitters is a Motley Fool Stock Advisor choice. The Fool's disclosure policy is loved by investors and fashionistas alike.