Why Crocs (CROX) still is not a buy


Crocs Inc. (NASDAQ: CROX) just reported decent earnings, getting everyone excited about international growth, but just missing analysts expectations and causing their stock to lose 12% and already I'm seeing tons of bloggers, traders and "market experts" defending the stock here. Sure, they might be right, if you want to better your odds of success and not play the ridiculously random guessing games most investors and traders seem to enjoy playing, don't fight an earnings move especially a momentum stock's earnings move.

Momentum stocks have special qualities that vex investors -- especially value investors --because it's not just about the physical numbers, it's about expectations. Everybody has different expectations and a momentum stock's subsequent price action is the result of how the actual earnings results mingle with those expectations. Don't be foolish enough to believe that your own personal beliefs, expectations, thought process and conclusion matter in the least. I don't care who you are, you matter little to the stock price.


While it's true that every now and then a substantial earnings move reverses, at least to some degree – like fellow momentum play Chipotle Mexican Grill (NYSE: CMG) did last Friday, bouncing up from $95 to $105 -- the vast majority of earnings move stick and the stocks tend to move in the same general direction for days and weeks to come. Cisco Systems (NASDAQ: CSCO) managed to recover nicely off its weak future guidance, but less than a week later, it's given up most of those gains.

After all, while it takes time to digest all the numbers, biases are created and those biases influence firms, traders and brokers for or against a company until the next set of numbers are released, restarting the whole expectations games.

Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund

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