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An array of Crocs clogs sit in a storefront display in Boulder, Colo. on Tuesday, Oct. 3, 2006. (David Zalubowski/AP)
An array of Crocs clogs sit in a storefront display in Boulder, Colo. on Tuesday, Oct. 3, 2006. (David Zalubowski/AP)

Is Crocs on another spongy march to the bottom? Add to ...

One of the founders of Crocs Inc., the maker of the allegedly ugly rubber clogs, was arrested on a drunk driving charge in Colorado last weekend. George Boedecker’s “epic rant,” as characterized by thesmokinggun.com, marks him as, to say the least, volatile.

(Want to read the rant? Warning: The article has nine obscenities in nine paragraphs and is suitable for those who think the movie Goodfellas would have been better if it had had more profanity.)

Even more volatile than Mr. Boedecker, however, is Crocs stock.

The company was a fashion-industry growth darling in its early life. After a 2006 IPO, it increased five-fold in just over 18 months. Then, in the fall of 2007, a revenue miss started an ever-more-rapid descent: In just over a year, the company’s shares went from $75 to 79 cents.

(Disclosure: In my past life as a Colorado business journalist, I arguably played a role in the decline.)

Those who decided to gamble at the bottom were rewarded handsomely. Those who bought at around $1.25 – and there were plenty of opportunities to do so over five months in the winter of 2008-09 – realized a 2,500 per cent gain by the summer of 2011.

Onward and upward? Nope. Reacting to decelerating sales growth, investors have cut the shares in half again; they’re currently around $16.

The big question, then: A temporary setback, or steps down on another trip to the bottom?

Certainly, growth is slowing. For four consecutive quarters starting in the final period of 2010, year-over-year revenue gains ranged from 28 per cent to 36 per cent. In the last three quarters, however, revenue gains have been in the low teens.

However, here’s the good news, for those overly worried about the slowing top line: margins. Gross margins of 59.3 per cent were the highest of its comeback period (since 2009). The EBITDA margin, or earnings before interest taxes depreciation and amortization divided by revenue, was 24.3 per cent, the highest margin since 2007. Its net income margin of 18.6 per cent was close to the 18.8 per cent of 2011’s second quarter.

The second-quarter results topped analyst expectations, helping Crocs shares move a couple dollars off their 52-week lows. Of 10 analysts covering the company, seven have “buy” ratings; the average target price is $23.71, Bloomberg says.

At current prices, the shares trade at 10 times forward earnings estimates – the lowest P/E of its comeback period.

Reed Anderson of Northland Capital Markets, in a note before the shares gained after the second quarter report, said the shares were “significantly discounted from the 23 per cent average earnings growth we are forecasting for FY12-FY13.”

“The company has a strong financial condition with no debt and over $3 per share in cash,” he says. His “outperform” rating and $26 price target is based on multiple of 14 times to 15 times 2013 earnings per share and, he says “is more in line with the rate of growth and typical valuation levels for established, growing brands in the Active Lifestyle space.”

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