New look not likely to give boost to Crocs’ investment outlook
Crocs (Nasdaq: CROX) is going retro, but unfortunately for investors, it’s not flashing back to its heady days of growing sales and soaring shares. Instead, it’s simply trying a new – and purely cosmetic – twist on the old Crocs.
The shoe company is touting its new Crocband style, which supposedly gives a little “retro sneaker” edge to the Crocs lineup. These new Crocs pretty much look like the old Crocs, except for their white-with-a-stripe soles, which recall the classic look of Chuck Taylor All-Stars, the signature sneakers of Nike’s Converse division. While imitation is the sincerest form of flattery, how many consumers are out there wishing they didn’t have to choose between Chucks and Crocs?
Fading fads can be painful. Like investors in Heelys, Crocs shareholders have suffered from the company’s plunging stock price. We’ll see this winter whether Deckers Outdoors’ UGG boots, long the fluffy footwear of the hip and famous, can eke out another year of popularity. At least Skechers seems adept at constantly reinventing its footwear, albeit with designs that admittedly touch on elements of recent trends.
Some investors will always maintain their love affair with stocks that have exciting stories, no matter how poorly the businesses do. Consider steering clear of Crocs, though, as its recent superficial tweaks may not make any real difference.
Ask the Fool
Q: I’m about to begin investing. I’ve read that when it comes to mutual funds, I shouldn’t waste my time in anything but a low-cost index fund. Is that right? – E.O., online
A: For most people, a broad-market index fund is perfect. An S&P 500 fund will instantly have you invested in 500 of America’s biggest companies. (Many of them have substantial overseas operations, giving you some international exposure, too.) You can go even broader with something like Vanguard’s Total Stock Market index, which includes smaller and medium-size companies, too. Look for index funds with low fees, such as ones from Vanguard.
If you want to try to beat the market, you might put some of your money into a few top-notch managed mutual funds, where managers make lots of buy-and-sell decisions. Or invest in a few carefully chosen individual stocks. Index funds, though, are the easiest and will get you close to the market’s return, which is great for those without the time, interest or expertise to study funds and stocks. Learn more at www.fool.com/mutualfunds/mutualfunds.htm.
Q: If a company’s price-to-earnings (P/E) ratio is a measure of its risk, what happens to the P/E when the stock splits? – B.S., Davenport, Iowa
A: The P/E doesn’t reflect risk, except perhaps by suggesting whether a stock is overvalued or undervalued. It’s simply the recent stock price divided by the earnings per share. A stock trading at $20 per share with $2 in EPS will have a P/E of 10 (20 divided by 2). If the stock splits 2-for-1, the shares will be priced at $10 and the EPS will also be halved, resulting in an unchanged P/E (10 divided by 1 is 10).
My dumbest investment
Several years ago, I read in my Sunday paper about a company that was working on a way to cure cancer. Its stock had closed around $12 per share on Friday, so I placed a “market” order to buy 200 shares when trading commenced on Monday. I ended up getting my shares at the opening price of $83. The stock hit $85 briefly and then careened down to the $20s. I bailed out painfully at $46. – Bob H., Charleston, S.C.
The Fool responds: It’s often good to place “market” orders, which buy or sell at the going price, instead of “limit” orders, where you specify a minimum or maximum price. But it’s best to use market orders while the market is open, so you have a good idea of the going price. While the market is closed, big news can lead a stock to open later at a much higher or lower price, making market orders risky, as you learned. Shares of small companies can be especially volatile. Clearly, you weren’t the only one placing a buy order that weekend after reading about the company.