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.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center