Normally, when a company reports a quarter with numbers as impressive as Crocs (NASDAQ: CROX) did, you expect the share price to rise. On September 30, Crocs reported third quarter earnings per share of $0.66 versus expectations of $0.63 and revenue of $256.3 million, in-line with expectations. The death knell was the dreaded words "in-line."

The company had been on a run of exceeding Street expectations by quite a bit. The shares were hit very hard on Thursday coming down from $74 to $47, exacerbated by a 360-point decline in the Dow.

The numbers that Crocs reported were actually quite impressive as revenue were up 130% over last year's 3rd quarter and earnings were up 144% for the same period. The gross margins expanded from 58% to 60.4%, while the ever-important operating margin actually hit above 30%. Young growth companies are not supposed to hit operating margins of 30%. It is virtually unheard of.

The other important piece of news was the company raising its 2008 guidance for earnings in the $2.65-2.70 range. With 2007 looking to be at $1.96, the growth for 2008 would be 35-40%. The stock market reaction was a tremendous overreaction, and the shares are now selling at quite a discount to its growth rate and operating margin level.

Typically, the market is comfortable assigning one P/E point to one point of growth or one point of operating margin. With the growth rate and the operating margins north of 30%, Crocs could support a 30 PE of its 2008 earnings expectations or $81 per share. Assigning a premium over the 30 PE would lift the shares even higher.