Back on February 21, I began a series of articles on Crocs Inc. (NASDAQ: CROX). I have been recommending the stock to the members of the Insiders Insights club of my website since late 2006, when the stock was trading at $40 -- that's before the 2-for-1 split. Those shares are currently at almost $94. On a split basis the stock is above $46. Basically, my members have more than doubled their money in the past six months. Great investment, good timing. What to do now with this controversial company? Where can it go from here?

I have written that Crocs is not a fad, Crocs is an emerging, global phenomenon, and that Crocs even has the opportunity to become the next Nike Inc. (NYSE: NKE). The controversy surrounding Crocs involves the love-it or hate-it relationship with its shoes. People fall very heavily into one camp or another -- there's very little neutrality on this subject!

What makes Crocs a full-blown phenomenon is its extraordinary distribution model. 11,500 domestic-retail, distribution outlets and 12,500 international distribution outlets. Crocs distributes through third-party vendors, therefore not needing its own bricks-and-mortar set-up. It's brilliant as Crocs generates gross margins in the 60%+ range and its "real estate" is someone else's. With this model, Crocs generates operating profit margins in the 25-27% range. This is what appeals to institutional investors! I cannot emphasize this point enough. Young, start-up companies hope -- hope -- to have operating margins in the mid-20's% upon maturity, but to have these margins during the build-up stage is just remarkable. Besides its great sequential quarterly revenue growth, the operating margins "is the story"!

Apple Inc. (NASDAQ: AAPL) announced its earnings this week and absolutely crushed the estimates. Apple reported $0.87 per share, while Wall Street expectations had ranged between $0.63 and $0.66 per share. The stock has moved up very nicely to around $100, but if one extrapolates the earnings momentum, which puts a $4.50 earnings number for 2008 and a PE multiple of 30 times (which Apple deserves), the stock should be right above $125 per share. Simple math, easy projection, so why is the stock only at $100?

Apple did indeed crush analysts estimates, but a huge part of the "extra earnings" are either not sustainable or predictable. Every company that trades in the public markets has a financial business model that the chief financial officer and research analysts work from. One dollar of revenues should equal how much profit on a pre-tax basis, or the operating profit margin. In the case of Apple, the financial model is for 27 to 30%, or 27 to 30 cents per dollar of revenue should be at the pre-tax profit line. That's Apple's model. So what happened?

This quarter Apple reported an operating profit margin of 35% -- a huge, huge increase. Reason to celebrate and uncork the champagne bottles? Not exactly. The reason Apple had a 35% operating margin was because of their enormous savings in semi-conductor chips and equipment. Every Mac and iPod is run by a set of integrated circuits that Apple outsources to various semi-conductor manufacturers. Apple was able to take advantage of an oversupply in the semi-conductor world driving down pricing, therefore generating the extra pre-tax operating margin. It may just be a one- or two-quarter pricing advantage, not something that can be taken for granted and made part of the permanent financial model.