Shares of Crocs (Nasdaq:CROX) are up more than 300% this past year alone thanks to booming sales of the company's flagship sandal. In light of the product's increasing popularity and Wall Street's obvious attraction to the stock, is this the time to be selling?

Insiders seem to think so.

Over the past six months alone, senior executives at Crocs have jettisoned over two million shares. Among the sellers, the company's vice president of sales and marketing, Michael Margolis, and its chief executive officer, Ronald Snyder.



Why Are The Insiders Selling?
To be clear, the insiders could be selling for any number of reasons, such as simply diversifying their personal wealth. However, there are a number of reasons why I think they could be selling. (Not all insider trading is against the rules; to learn more, read Defining Illegal Insider Trading.)

First off, while the company makes products ranging from more traditional sandals and boots, its primary driver is still the original, hole-filled plastic shoe. So, what happens when that fad dies, or simply loses some of its luster?

Crocs has signed some licensing deals, including ones with Disney (NYSE:DIS), The National Football League, and Nickelodeon. Its popularity could still grow from here, but do you remember when Nike's (NYSE:NKE) Air Jordan basketball sneakers were all the rage? People said that shoe's No. 1 position would last forever. But where is it now?

A One-Trick...Crocodile?
If this product's popularity does start to wane, the focus will shift to its pipeline of new products. Will Crocs be able to follow up with hit after hit like Apple (Nasdaq:AAPL) seems to do in the world of technology, or like Nike has done over time? It's possible, but the odds are definitely not in the company's favor.

The expectation bar has been raised quite high as well. Management recently forecast that full-year earnings will come in between $1.89 and $1.93 per share - well ahead of the $1.56 per share analysts had been expecting. Now, that's all well and good, but the problem is when companies positively surprise the Street like this, the analyst community expects the trend to continue. If the economy, and retail sales really begin to slow, Crocs will be hard pressed to continue impressing the Street.

Rival Swamp Dwellers
Don't forget about the competition! Remember there are plenty of deep-pocketed players out there that want to knock Crocs out of the box. Nike offers a host of hot sandals of its own, and don't forget about all of the inexpensive imitations that are almost sure to make their way into the market.

The company has been growing at a healthy clip. However,, in terms of annual sales, its still only about one-seventeenth the size of Nike - it's still got a long way to go to be one of the big boys. Also, keep in mind that smaller companies are well suited for rapid growth. But as companies grow in size, that ability tends to diminish.




The Good News
There is no doubt about it - the company's footwear is hot! Even if the U.S. economy does start to wane, Crocs are sold in about 80 countries, and they are selling very well in Europe. To its credit,the company has solid operating leverage (which should help its margins), and is expected to have an increasing influence over the retailers that sell its products.

Bottom Line
Crocs has plenty of things going for it. However, the fact that its stock price has come so far so fast, and that expectations are so high, makes me believe that sooner or later the shares will probably fall off. And again, it seems that the insiders may agree with me.

For more on the importance of insiders, check out Keeping An Eye On The Activities Of Insiders And Institutions.

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Tickers in this Article: CROX, NKE, AAPL, DIS

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