Not that there’s anything wrong with that, mind you.

But as I walked, shoulders down, grim-faced, I noticed a gaggle of young girls screaming about the latest fashion craze in the window of the mall’s shoe store. “Like, oh my gawd,” one of them said. “I, like, must have those shoes.”

That’s when I saw the next big investing opportunity sitting in front of me and I, too, found myself overjoyed with the opportunity. “Like, oh my gawd,” I screamed…in my head. “This is the latest in funky footwear fashion that everyone’s been talking about.”

Mind you, I’m the last person to talk about fashion. Just ask the people I work with. But I do know a good investment opportunity when I see it. The company: Crocs Inc. (CROX: NASDAQ).

The bulky shoes in your shoe store window are flying off the shelves quicker than you think. So fast, in fact, that since this Colorado-based business quickly flew from $1.2 million in 2003 to more than $108 million by 2005.

That’s quite impressive considering that in 2002, the company reported $24,000 in revenue and sold 1,500 clogs. Last year, they sold six million.

By February 2006, the company had its IPO and watched as shares skyrocketed from $21 to $28.55. Since then, shares have ranged between $20 and $37, and are currently at $25.

The company’s Q1 filing wasn’t bad either, with revenue increasing 309% to $44.8 million, compared to the same quarter last year as net tripled to $6.4 million, or 17 cents. But when the company cited strong consumer demand and upped guidance for Q2 to $0.23 to $0.25 on revenue of $62 million to $65 million, from $0.21 to $0.22 on revenue of $53 million to $55 million, that’s when we got excited.

Q2 wasn’t too shabby either, as profits skyrocketed as sales of its clogs tripled on strong domestic and international demand, helping Crocs to easily beat Street expectations. Even better, the company boosted Q3 guidance well above guidance. 

Q2 net income came in at $15.7 million, after preferred dividends, or 39 cents a share from $3.3 million, or 10 cents per share on sales of $25.8 million. The Street was only expecting a profit of 22 million.  As for Q3, EPS between 38 and 40 cents is expected on revenue of $87 million to $90 million. Again, this beat out expectations. The Street was only looking for a Q3 profit of 23 cents a share, on sales of $56.7 million. 

We’d been expecting a hot summer for Crocs, considering they sell sandals. And if you haven’t already taken notice, now is the time to. Why? One, there’s seasonality. And two, not only is it cheap after being beaten down from $37 to $25, there’s also the Q1 numbers.

The company had about $45 million in revenue in the winter months. Let me repeat that — In the winter months. If people are paying for sandals in the winter, think of what they’ll buy in the spring and summer months of the year. To be honest with you, the raised estimates may be too conservative given the growing popularity of this type of footwear.

It’s selling these shoes in 7,300 stores. Nine hundred of those were added in Q1, and include the likes of Dick’s and Dillard’s. Even Wild Oats and Barnes & Noble are selling them. The best part — the bulky clogs, are winning over every one from food service personnel to nurses to boaters and swimmers, and beyond.

Even my publisher, Red Zone Profits founder Chris DeHaemer, who spent many an hour in the hospital waiting for Baby Girl Number Three to arrive, noticed that many of the nurses were wearing them, too.

We are bullish on shares of Crocs under $26, seeing only explosive near-term growth. The stock’s secondary offering of 9.9 million shares forced the share price lower, making the stock a steal on the cheap.

Note: If you’re not already familiar with unlocks, you should be. Pay close attention to unlock dates, especially if the unlocked shares double or dwarf the existing float. Extreme Volatility Speculator readers did and realized impressive gains from the likes of Under Armour (UARM: NASDAQ).

Just like EVS had hoped, shares of Under Armour took a dive after unlocking 12.1 million shares, which just about doubled its 13.22 million-share float. The underlying stock was down about $2 following the share unlock. But what happened to Under Armour wasn’t a rare event. You see, when any company goes public, only a percentage of the company’s stock is offered for sale, which is known as the float. 

The rest is held and owned by underwriters, company officers and other insiders. By contractual obligation, insiders and underwriters can’t sell their stock for a period of time…usually six months to a year from the date of the IPO. This is commonly referred to as the lock-up period, and it’s set up to ensure that insiders cannot profit from the early trading frenzy generated by an IPO. It provides stability because insiders cannot simply dump their shares. Once the lock-up period expires, anything goes, and insiders are allowed to sell their shares. 

If an insider has realized a significant gain on his investment, he or she may cash out. And in many cases, insiders flood cash in and flood the market with shares, forcing the stock price lower. Ordinary shareholders, unfamiliar with the unlock practice, are completely baffled. Share prices are dropping like cement boot in the East River and they don’t know why. Lucky for us, they panic and dump their shares at a loss, only adding to the glut and our profit opportunities. 

Take care,

Ian Cooper

Capitalize on This Shoe Craze was originally featured in the Penny Sleuth.