Making Financial Headlines · Page 7
Crocs' Cheap-Stock Story Becomes Much More Expensive After Earnings
· New York time
Crocs shares jumped 25.5% after earnings Thursday, part of a roughly 30% rise since CNBC highlighted the footwear company's depressed valuation on October 13. The rally turned a discussion about an overlooked stock into a discussion about whether the move has further to go. A low valuation can attract investors who think a business is being underestimated, but a sharp rise also changes the price at which that assessment is made. The post-earnings reaction shows how quickly sentiment can shift when a company reports results that bring new attention to its shares. For customers, Crocs sells recognizable casual footwear. For shareholders, the same products are part of a business whose prospects must be weighed against its stock price. A large one-day gain tells investors how the market reacted to the report, not what every future quarter will bring. The company has given the market a comfortable object around which to build a less comfortable question: how much optimism should now fit into the price? A clog may be easy to slip on, but a valuation assessment takes more work. After a rally like this, even the bargain has to stand for a fresh measurement.
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