While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.
Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.
Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the “Value” category. When paired with a high Zacks Rank, “A” grades in the Value category are among the strongest value stocks on the market today.
One company value investors might notice is Crocs (CROX – Free Report) . CROX is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock is trading with P/E ratio of 8.67 right now. For comparison, its industry sports an average P/E of 10.99. Over the past year, CROX’s Forward P/E has been as high as 12.91 and as low as 4.20, with a median of 8.76.
Investors will also notice that CROX has a PEG ratio of 0.58. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company’s expected EPS growth rate. CROX’s PEG compares to its industry’s average PEG of 1.52. Within the past year, CROX’s PEG has been as high as 0.86 and as low as 0.28, with a median of 0.59.
Finally, investors should note that CROX has a P/CF ratio of 9.86. This metric focuses on a firm’s operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. This company’s current P/CF looks solid when compared to its industry’s average P/CF of 22.10. Within the past 12 months, CROX’s P/CF has been as high as 14.31 and as low as 3.93, with a median of 9.89.
If you’re looking for another solid Textile – Apparel value stock, take a look at Guess (GES – Free Report) . GES is a # 2 (Buy) stock with a Value score of A.
Guess also has a P/B ratio of 1.69 compared to its industry’s price-to-book ratio of 6.01. Over the past year, its P/B ratio has been as high as 2.90, as low as 1.69, with a median of 2.19.
Value investors will likely look at more than just these metrics, but the above data helps show that Crocs and Guess are likely undervalued currently. And when considering the strength of its earnings outlook, CROX and GES sticks out as one of the market’s strongest value stocks.
Crocs (NASDAQ:CROX) is a fairly new company founded in 1999 in Broomfield, Colorado. It sells under the Crocs brand name various footwear products such as clogs, sandals, slides, flips, wedges, platforms, socks, boots, shoe charms and slippers.
Especially since the corona crisis, Crocs has been growing rapidly partly due to the growth of e-commerce; in 2021 and 2022 sales increased 64% and 54%. Operating margin increased from just 6% in 2018 to 26% currently. Crocs footwear is an increasingly popular brand and with the acquisition of HEYDUDE in 2022, Crocs has a very profitable and fast-growing footwear brand under its umbrella.
Crocs shares are volatile and suitable for the long-term investor. Management is strong and has led Crocs into a very profitable brand, with gross margins even higher than Nike (NKE). The prospects look good and the stock’s valuation is attractive. Crocs are sought after by enthusiasts and, in my opinion, are cyclical. I expect Crocs to experience volatile times in times of economic recession. So investors should be aware of that. Given the positive outlook and the stock’s attractive valuation, Crocs is buyable, but only for investors who can accept the volatility.
From 2014 to 1017, Crocs’ new management reduced the number of stores from 600+ to less than 400, focusing on profitable outlets. It also sharply cut SG&A costs and invested in marketing, and Crocs focused heavily on e-commerce. Digital penetration is 37% and this has significantly improved their fixed costs.
The first quarter 2023 results came out strong with quarterly sales of $884 million (36% growth on a constant currency basis). Crocs brand sandals grew particularly strongly with sales of 65%, of which sales in China increased by more than 110% on a constant currency basis. Sales from the recent acquisition of HEYDUDE increased 15% on a pro forma basis.
What I find attractive about Crocs are their high gross profit margins of 54%. The gross profit margin is even higher than Nike’s (Nike’s gross profit margin = 44%). Crocs is highly profitable; the operating margin came in at 28%. Adjusted earnings per share rose 27% to $2.61 per share.
Crocs has tremendous growth potential as the total market for casual footwear is a whopping $160 billion. With annual sales of $3.6 billion by 2022, it has captured only 2.2% of the casual footwear market.
Crocs’ branded Sandals are growing strongly and growth is expected to continue in 2023. With only $310 million in sales in 2022, the global total addressable market for sandals is $30 billion, indicating significant room for growth for Crocs. Crocs Sandals revenue are expected to grow 29% this year.
Crocs’ marketing campaigns will continue in 2023 by entering into more than 60 global brand partnerships with celebrities, mega brands and licenses. More than $200 million will be invested in marketing objectives that will take sales to the next level. Current marketing partnerships are with strong brand names such as NBA and MLB, Hello Kitty & Friends, Minecraft, Melting Sadness (CHINA) and Western Hydro Research.
Crocs does not pay a dividend, but rewards shareholders through a share repurchase program. The extremely high buyback yield of 14% in 2021 caused a big spurt in the share price. Crocs returned 6% more cash to shareholders than it generated in free cash flow in the past 4 years.
Because of lagging earnings and free cash flow in 2022 and beyond, Crocs has hardly bought back any shares. It also does not plan to repurchase a significantly amount of shares in the near term.
Crocs’ cash flow highlights (Annual reports and analyst’ own calculations)
Crocs Seems Undervalued
The valuation of the stock is usually charted by analyzing the PE ratio. The non-GAAP PE ratio is currently 10.0, which is quite attractive.
It is difficult to determine the average PE ratio because the GAAP PE ratio is negative in 2019 according to YCharts.
The price to free cash flow offers a solution here. We see in the chart that the price to free cash flow ratio is 12.1, while the 3-year average is 19.2. This means that the stock is currently quoted 37% cheaper than the 3-year average. However, its free cash flow has not increased in 2022 and beyond. So the stock’s valuation could be expensive if free cash flow declines in the coming years.
However, the price to free cash flow does not take into account debt and cash into the valuation, so I also look at enterprise value to free cash flow ratio. This ratio quotes 15.7, which represents a 25% discount to the historical average.
In the short term, 8 analysts revised their earnings estimates upward, while 2 analysts revised their estimates downward. On average, they expect non-GAAP EPS growth of about 12+% and revenue growth of 9+% per year. The projected PE ratio for 2024 comes out to 8.9, which is very attractive.
Crocs’ earnings estimates (CROX ticker page on Seeking Alpha)
Conclusion
Crocs sells casual footwear and has had particular success with their collection of Crocs branded Sandals. The company is growing rapidly because it has strategically focused on e-commerce that saves costs compared to retail stores. Especially since the corona crisis, Crocs has been growing steadily. First quarter figures were strong with 36% revenue growth at constant currency. With a gross profit margin of 54%, it is even more profitable than Nike. Crocs is still a small player in the casual footwear market which has a TAM of $160 billion, so Crocs can grow significantly. Crocs brand Sandals are doing especially well, with revenue up 65% year-over-year in the last quarter. Crocs sandals make up only 1% of the total addressable market. For 2023, Crocs is very optimistic about its sandals revenue and expects revenue growth of about 29%. This will be achieved with help of more than 60 global brand partnerships with celebrities, mega brands and licenses. With its current marketing partnerships with NBA and MLB, Hello Kitty & Friends, Minecraft, Melting Sadness (China) and Western Hydro Research, Crocs manages to capture a fair share of the market.
Crocs does not pay a dividend, but distributes cash to shareholders through a tax-efficient share repurchase program. This benefits growth investors who like to see the stock price rise. However, no share buyback program is planned in the short term. Looking at the stock’s valuation, it looks favorable when looking at various valuation metrics. The favorable outlook, high profit margins and attractive stock valuation make the stock worth buying.
Crocs (NASDAQ:CROX) closed Q1 2023 reporting impressive results, easily beating analyst estimates with regards to topline and crushing estimates with regards to EPS. Moreover, the company voiced bullish commentary going into Q2 2023 and beyond–raising guidance and reiterating the expectation for a year of “(a) robust revenue growth, (b) top-tier margins and (c) significant cash flow generation”. Accordingly, and reflecting on a x10 EV/EBIT paired with an above 10% revenue growth in 2023, investing in CROX stock continues to look like an attractive value and growth opportunity alike.
Post-Q1 2023, I update my valuation model for CROX, and I now calculate a fair implied share price equal to $148.85.
For reference, CROX stock continues to be a strong relative outperformer as compared to the broad market: for the trailing twelve months, the stock is up close to 75%, as compared to a flat performance from the S&P 500 (SPY).
Seeking Alpha
Crocs’ Strong Q1 2023
Crocs reported solid Q1 2023 results, comfortably topping consensus estimates with regards to both sales and earnings. During the period from January to end of March, Crocs generated group revenues of $884 million, an increase of approximately 34% as compared to the same year prior, and about $30 million above analyst consensus estimates (according to data collected by Bloomberg). Similarly, Crocs’ profitability expanded attractively: for the January 2022 quarter, Crocs’ adjusted operating profitability came in at $234.9 million, versus $118.7 million in Q1 2022; and EPS increased to $2.42, as compared to $1.22 respectively — doubling YoY, and topping analyst estimates by approximately 15%.
Reflecting on a strong December quarter, Crocs’ CEO Andrew Rees commented:
Our exceptional first quarter results are a testament to the strength of our brands. The Crocs Brand grew 19.0% as we see a strong consumer response to our new clog and sandal introductions. The HEYDUDE brand is gaining momentum and experienced outstanding DTC growth.
CROX Q1 2023 reporting
On a segment basis, Crocs Brand’s topline reached $648.8 million, marking a substantial increase of 19.0% compared to the previous year. When considering constant currency rates, the growth would be 21.6%. As for the HEYDUDE Brand, revenues were $235.4 million. This represents a remarkable growth of 104.8% during the period from February 17, 2022 (the acquisition date) through March 31, 2022.
Strong Guidance Supports Bullish Thesis
As Crocs continues to see strong demand and attractive growth opportunities across geographies and product classes, management guided for a strong start into Q2 2023 and raised estimates for FY 2023:
“We are raising our 2023 revenue growth outlook to now be 11% to 14%, resulting in revenues of approximately $4.0 billion, reflecting our confidence in our ability to continue to gain market share, deliver best-in-class profitability, and generate strong cash flow.”
In the upcoming second quarter of 2023, Crocs now anticipates group revenue growth in the range approximately 6% to 9% YoY. In financial terms, management estimates a topline between $1,026 million to $1,049 million (assuming no currency fluctuation). Regarding profitability, management expects an operating margin of about 26.0%, and adjusted diluted earnings per share between $2.83 to $2.98.
In Q4 2022, Crocs management has already guided for a strong FY 2023 …
We anticipate another record year in 2023 with growth expected to be led by sandals and international for the Crocs Brand and increased US market penetration for HEYDUDE.
… but post Q1 2023, Crocs became even more confident, raising guidance as follows:
Consolidated revenue growth is now projected to be between 11% and 14% YoY (as compared to 10% to 13% YoY previously), which would result in estimated topline of approximately $3,945 million to $4,045 million at the current currency rates
For the Crocs Brand, management expects revenue growth ranging from 7% to 9% YoY.
As for the HEYDUDE Brand, the revised forecast suggests a mid-20% growth in revenues YoY.
Adjusted operating margin will likely fall in the range of 26.0% to 27.0%.
Finally, adjusted diluted earnings per share are estimated between $11.17 and $11.73, which would imply a P/E of less than x10.
With that frame of reference, Crocs bullish outlook for 2023 is supported by two major pillars: first, growth opportunities in China, which enjoy a favorable economic tailwind … (emphasis added)
As China reopens and the consumer returns to more normalized shopping, we’re excited about the prospect of building significant Crocs brand presence in 2023 and beyond. While still a smaller base than we would like, we expect China to grow approximately 30% in 2023.
… and second, new opportunities in relation to Crocs’ sandal product ambitions … (emphasis added)
Sandals, an important growth initiative for Crocs, allowing us to extend into the adjacent $30 billion global sandal category, where we believe our molded technologies, accessible price points, strong go-to-market will allow us to compete effectively in a relatively fragmented market.
Valuation Update
Anchored on a strong FY 2023 guidance, I update my EPS expectations for CROX through 2025. I estimate that Crocs’ EPS in 2023 will likely expand to somewhere between $10.7 and $10.9 (I like to estimate cautiously vs. management guidance). Moreover, I also raise my EPS expectations for 2024 and 2025, to $11.2 and $11.65, respectively.
However, I continue to anchor on an 10.0% cost of equity and a 3.0%, terminal growth rate (about 25 basis points below estimated nominal global GDP growth).
Given the EPS updates as highlighted below, I now calculate a fair implied share price for CROX equal to $148.85.
Author’s EPS Estimates; Author’s Calculation
Below is also the updated sensitivity table.
Author’s EPS Estimates; Author’s Calculation
Conclusion
Crocs closed the March quarter reporting impressive Q1 results, easily beating analyst consensus estimates with regards to topline and crushing estimates with regards to earnings. And with FY 2023 expected to be supported by a favorable economic tailwind in China, as well as attractive opportunities in the sandal category, it is unlikely that FY 2023 will be anything else than another year of impressive growth and profitability.
Anchored on a strong management guidance, I update my valuation model for CROX, and I now calculate a fair implied share price equal to $148.85.
Over the past three years, Crocs(CROX 1.00%) shares have produced a monster return of 520%. This performance trounces the gains posted by both the S&P 500 and the Nasdaq Composite index. Crocs’ return also easily outpaces some of its industry peers, like Nike, Skechers, and VF Corporation.
But while past returns can certainly draw in some investors looking to ride the momentum to a higher portfolio value, what really matters is what the future looks like, particularly over the long term. In Crocs’ case, there’s a popular indicator that might indicate this top footwear stock is a screaming buy right now. Let’s take a closer look.
A bargain-basement valuation
Despite Crocs’ stock making a meteoric rise in recent years, surprisingly, it still looks undervalued today. As of this writing, shares trade at a price-to-earnings (P/E) multiple of 16.6. For comparison’s sake, the S&P 500 is trading at a P/E ratio of 18.6 right now. And Skechers’ P/E multiple is 20.9.
A lower valuation is more attractive from an investment perspective because it means there is more upside, all else being equal. Expectations for the company and stock are lower than where some might think they should be. Once the market realizes that shares should be valued higher, multiple expansion occurs, boosting returns.
Reasons to be bullish on Crocs’ Stock
A cheap valuation might be warranted if the business in question is of poor quality. This is called a value trap, something investors should try to avoid. Crocs is far from a value trap. And there are three compelling reasons to be bullish on the stock.
First, throughout Crocs’ history, it has been heavily reliant on a single product for its success — the popular foam clog. While this item accounted for 57% of the overall company’s sales during 2022, investors should expect this figure to come down going forward. That’s because in February 2022, Crocs completed the purchase of casual footwear brand HeyDude in a deal worth $2.5 billion. HeyDude is projected to do over $1.1 billion in revenue in 2023, and it’s registering faster growth than the flagship Crocs brand.
Shareholders should appreciate this move by Crocs because it can help to diversify the company’s revenue streams, making it less dependent on the success of the foam clog. Fashion is fickle, and consumer tastes are constantly changing. Crocs should be able to support sustainable demand over longer periods of time with this acquisition and benefit from selling numerous in-demand footwear products under one umbrella.
Moreover, Crocs has been effective with its marketing strategy. The company has been known for doing some farfetched collaborations, like those with Hidden Valley Ranch, Kentucky Fried Chicken, and 7-Eleven. In order to bolster the brand, Crocs has also created designs for Justin Bieber and Balenciaga, to name just two. This keeps the excitement high, while pushing to drive greater interest from customers.
Finally, investors should be bullish on Crocs because of its outstanding profitability and growth potential. In 2022, the business posted a gross margin of 52% and an operating margin of 24%. Both were down compared to 2021, but they still represent better profitability than Nike, for example, which dominates the clothing and footwear categories. Crocs’ ability to also generate lots of free cash flow will allow it to easily navigate current macroeconomic headwinds.
According to Wall Street analysts, Crocs’ revenue is expected to increase at a compound annual growth rate of 12.2% between 2022 and 2026. And in 2026, the business is forecast to produce $17.57 in diluted earnings per share. This means the current price of roughly $144 is just 8 times that projected bottom-line figure. This all makes it a no-brainer decision to seriously consider buying Crocs stock.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Crocs and Skechers U.s.a. and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
Crocs (CROX – Free Report) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock’s performance in the near term.
Over the past month, shares of this footwear company have returned +17.8%, compared to the Zacks S&P 500 composite’s +6.2% change. During this period, the Zacks Textile – Apparel industry, which Crocs falls in, has gained 14.8%. The key question now is: What could be the stock’s future direction?
While media releases or rumors about a substantial change in a company’s business prospects usually make its stock ‘trending’ and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.
Revisions to Earnings Estimates
Here at Zacks, we prioritize appraising the change in the projection of a company’s future earnings over anything else. That’s because we believe the present value of its future stream of earnings is what determines the fair value for its stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
Crocs is expected to post earnings of $2.14 per share for the current quarter, representing a year-over-year change of +4.4%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
The consensus earnings estimate of $11.19 for the current fiscal year indicates a year-over-year change of +2.5%. This estimate has remained unchanged over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $12.55 indicates a change of +12.2% from what Crocs is expected to report a year ago. Over the past month, the estimate has remained unchanged.
With an impressive externally audited track record, our proprietary stock rating tool — the Zacks Rank — is a more conclusive indicator of a stock’s near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #2 (Buy) for Crocs.
The chart below shows the evolution of the company’s forward 12-month consensus EPS estimate:
12 Month EPS
Projected Revenue Growth
Even though a company’s earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It’s almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company’s potential revenue growth is crucial.
In the case of Crocs, the consensus sales estimate of $852.98 million for the current quarter points to a year-over-year change of +29.2%. The $4 billion and $4.36 billion estimates for the current and next fiscal years indicate changes of +12.5% and +9%, respectively.
Last Reported Results and Surprise History
Crocs reported revenues of $945.16 million in the last reported quarter, representing a year-over-year change of +61.1%. EPS of $2.65 for the same period compares with $2.15 a year ago.
Compared to the Zacks Consensus Estimate of $937.91 million, the reported revenues represent a surprise of +0.77%. The EPS surprise was +21.56%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates each time over this period.
Valuation
No investment decision can be efficient without considering a stock’s valuation. Whether a stock’s current price rightly reflects the intrinsic value of the underlying business and the company’s growth prospects is an essential determinant of its future price performance.
Comparing the current value of a company’s valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Crocs is graded B on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
Bottom Line
The facts discussed here and much other information on Zacks.com might help determine whether or not it’s worthwhile paying attention to the market buzz about Crocs. However, its Zacks Rank #2 does suggest that it may outperform the broader market in the near term.
Crocs, IncCROX was popping up about 2% higher on Monday despite the S&P 500 edging slightly lower ahead of big-tech earnings kicking off this week with Netflix and Tesla reporting earnings.
The shoes-with-holes maker has been trading in a strong uptrend within a rising channel pattern since March 15. The pattern is bullish for the short term, but can be bearish down the road.
For bullish traders, the “trend is your friend” (until it’s not) and the stock is likely to continue upwards. Aggressive traders may decide to buy the stock at the lower trendline and exit the trade at the upper trendline.
Bearish traders will want to watch for a break-down from the lower ascending trendline, on high volume, for an entry. When a stock breaks down from an ascending channel, it’s a powerful reversal signal and indicates a longer-term downtrend is likely in the cards.
The Crocs Chart: On Monday, Crocs attempted to break up from the ascending channel, but failed and wicked from the upper trendline. This indicates the local top may have occurred and Crocs will retrace, possibly to print a higher low at the lower trendline of the pattern.
Crocs was working to print a shooting star candlestick, which also suggests the higher high has occurred, and a decline is in the cards for Tuesday. Crocs’ move higher was also on lower-than-average volume, which indicates the bulls may be becoming exhausted.
The stock’s most recent higher low within its uptrend was printed on April 6 at $119.61 and the most recent confirmed higher high was formed at the $130.80 mark on March 31. If Crocs falls lower over the next few trading days, bullish traders can watch for the stock to print a reversal candlestick above $120.
Bearish traders want to see big bearish volume come in and break Crocs down from the rising channel pattern.
Crocs has resistance above at $145.37 and $157.80 and support below at $135.67 and $126.33.
Over the past five years, Crocs(CROX 1.10%) stock has been a huge winner for investors — surging 665% even after falling 31% from its peak. That’s a ridiculous return which crushes the broader market’s results by an insanely wide margin. Known for its popular foam clogs, the company is still registering outstanding results at a time when economic uncertainty is surging.
But does this footwear stock still have room to run — and become a potential multi-bagger for your portfolio, repeating its past success? Let’s take a closer look.
Diversifying the product line
In 2022, Crocs was able to increase its sales by 53.7% on a year-over-year basis. And this was on top of a 66.9% jump in 2021. The company’s gross margin of 52.3% and operating margin of 23.9% in 2022, although lower than the prior year’s figures, are still superb for any business, let alone an apparel company. On the surface, this is a rapidly expanding and profitable enterprise.
But there is one issue that shareholders should monitor. Last year, 77% of the Crocs brand’s revenue came from a single product, the foam clog. Now, this isn’t necessarily a bad thing on its own. Over the past few years, consumers have been drawn to affordable and comfortable clothing, a trend that might have been spurred by the coronavirus pandemic and the popularity of people working from home. And this has boosted Crocs’ prospects, but it does leave the business overly exposed to the success of one item. And if we know anything about consumer behavior, it is that change is a constant.
That’s why management, led by CEO Andrew Rees, decided to acquire casual footwear company HeyDude in late 2021 in a $2.5 billion deal. HeyDude is an Italian shoemaker, but its merchandise is popular here in the U.S. According to the fall 2022 Taking Stock With Teens survey conducted by Piper Sandler, HeyDude was the seventh most popular footwear brand among teenagers. For what it’s worth, Crocs was number five on this list. That’s a pretty good indicator of how strong these brands are, especially with such a valuable demographic that can be lifelong customers.
In order to set Crocs up for lasting success, diversifying the product lineup was essential. The added benefit is that HeyDude gains from Crocs’ global distribution and marketing capabilities, and Crocs is better off thanks to a larger potential customer base. In 2022, HeyDude’s revenue (post-acquisition) of $896 million was up 54% year over year, far outpacing the 14.9% growth of the Crocs brand.
Mixing value with growth
But one of the biggest risks to keep in mind is that the company faces a lot of competition in the footwear market. There are well-known names like Nike, Adidas, and Under Armour, and there are more direct rivals like Skechers, VF Corp., and Deckers. Moreover, there’s a very real possibility that the brand simply falls out of favor with consumers, a constant worry with these types of companies.
As the financials show, however, Crocs’ business has posted fantastic growth in recent years, continuing throughout 2022. And management expects revenue of between $3.9 billion and $4 billion in 2023, good for an 11.5% jump (at the midpoint). “We anticipate another record year in 2023 with growth expected to be led by sandals and international for the Crocs Brand and increased U.S. market penetration for HeyDude,” Rees highlighted in the Q4 2022 press release.
Looking even further out, it’s clear that Wall Street is very optimistic. Consensus analyst estimates call for sales to increase at a compound annual rate of 12.2% between 2022 and 2026, with operating leverage resulting in earnings per share rising at a 19.2% annualized clip over that time. This outlook should please shareholders.
If the growth prospects aren’t enough, consider that Crocs’ stock trades at a price-to-earnings ratio of just 14. Crocs shares look like a buy because they are selling at such a cheap valuation, and the company is posting outstanding growth and is incredibly profitable. That’s a wonderful multi-bagger recipe which should please investors.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike and Under Armour. The Motley Fool recommends Crocs and Skechers U.s.a. and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
Crocs, Inc. (NASDAQ:CROX) is a Colorado-based global lifestyle brand that designs, produces, and distributes innovative footwear, accessories, and apparel. Its mission is to provide everyone with comfortable, lightweight, and versatile footwear.
This once uninspired, unloved, and unprofitable company has since become a cash cow with a broad array of exciting product lines with intense brand loyalty and satisfaction. With strong revenue growth and EBITDA margins as high as 30%, rivaling software companies, we believe CROX stock is a Strong Buy due to its strong financial performance, best-in-class margins, and strategic expansion into new markets and e-commerce.
Crocs’ signature product is the Classic Clog, a slip-on shoe made of a proprietary closed-cell resin material called Croslite. Crocs’ footwear products are popular for their durability, comfort, and unique designs. The company also offers a range of accessories, including Jibbitz charms that can be attached to Crocs shoes, and a line of apparel that features the Crocs brand.
The company sells its products through multiple channels, including its website, company-owned retail stores, third-party retail stores, and e-commerce marketplaces. Crocs’ geographic presence is diversified, with operations in North America, Europe, Asia Pacific, and the Middle East.
Crocs has experienced strong growth in recent years, driven by its focus on innovation, marketing, and international expansion. The company has successfully leveraged its iconic brand and strong customer loyalty to expand its product offerings and increase sales. In addition, Crocs has made significant investments in e-commerce capabilities, enabling it to better serve its customers and drive online sales. During the 2020 pandemic, CEO Andrew Rees made the wise decision to pull from physical retail stores and focus on e-commerce as a driver of sales. This bet paid off: as of 2022, e-commerce sales now make up almost 50% of all revenues.
This year, we invested in our digital capabilities, including in the Crocs mobile app, global social platforms, such as Douyin, and digital talent across the globe. We’re confident these investments and our continued focus will drive digital growth globally over the long term.
Looking forward, Crocs plans to continue investing in product innovation and expanding its global presence. The company has identified key growth opportunities in Asia, particularly in China, where it plans to double its revenue by 2026. Crocs also plans to expand its direct-to-consumer channels, including e-commerce and owned retail stores, to increase its brand visibility and customer engagement. Crocs also plans on focusing on its sandals business, which only makes up $300m of its revenue, as it believes it can be a heavyweight player in the $30B TAM. Overall, Crocs’ strong brand and product offerings, combined with its strategic growth initiatives, position the company for continued success in the global footwear and accessories market.
The Power of Strong Leadership
Despite initial skepticism, the company has undergone a remarkable transformation under the leadership of CEO Andrew Rees, who joined in 2014. In 2014, CROX was drowning. Marketing was lackluster, stores were struggling, and expenses were out of control. By tapping into the power of social and digital marketing, he created buzz for the product by teaming up with influencers such as Post Malone and Vera Bradley. By improving brand relevance, improving channels for e-commerce, and cutting unnecessary expenses, he was able to unlock the untapped potential of CROX. Since Rees took over, the company has become profitable with impressive revenue growth, averaging 26.71% CAGR over the last 5 years, with a best-in-class 5 year average EBITDA margin of 19.64%. CROX has also seen tremendous growth in its share price, increasing an unbelievable 50.57% CAGR over the same 5-year period.
Financial Statements
Compiled by Author using Seeking Alpha
Crocs has exhibited remarkable growth in revenue over the past five years, boasting a CAGR of 26.71% and an average EBITDA margin of 19.64% over the same period. However, it is worth noting that a substantial portion of this growth was achieved in the fiscal years of 2021 and 2022, with the latter year’s growth mostly attributed to the HEYDUDE acquisition. While there remains a risk of revenue growth and EBITDA margins reverting to lower levels, management has repeatedly emphasized that they expect revenue growth to remain in the low teens, with EBITDA margins to stay at least at 26% for the next few years. Furthermore, management has repeatedly emphasized Crocs’ long-term goal is to surpass $6 billion in total revenues by 2026 while maintaining a 26% EBITDA margin. Despite their impressive profit margins, Crocs’ current low 5-year average EV/EBITDA multiple of 15.5x is surprising.
Crocs Investor Presentation
HEYDUDE, what’s that debt?
When analyzing Crocs’ balance sheet, it’s impossible to ignore their significant $2.6B debt, which they acquired in FY22 due to their acquisition of HEYDUDE. The acquisition was initially met with skepticism, as Crocs paid a whopping $2.5B (with $2.05B funded by debt and $0.45B funded by shares) for a company that was only generating $600m in revenue with a low operating margin. This 4x P/S acquisition of a shoe company caused a 13% drop in Crocs’ stock price, as the market punished the management team for their questionable purchase.
However, a year later, the acquisition seems to have paid off for Crocs. HEYDUDE has successfully integrated with Crocs, and the results are starting to show. Although Crocs initially guided for $1B in revenue for HEYDUDE by FY24, HEYDUDE was able to accomplish nearly $1B in revenues during FY22. Going forward, they expect at least 20% YoY growth for HEYDUDE for the next few years, and as they continue to integrate the company, operating margins for HEYDUDE are expected to improve to a long term adjusted operating margin of 26%+. Furthermore, strong cash flow in FY22 has already allowed for a $550M reduction in borrowings from $2.9B in Q1 to $2.3B in Q4. While the debt is a concern, the HEYDUDE acquisition has the potential to be a significant catalyst for Crocs’ growth in the future.
Crocs Investor Presentation
Risks of the Business
While Crocs has shown strong revenue performance and strong EBITDA margins in recent years, as a consumer discretionary product, it is subject to changing trends. While Crocs may be seen as “cool” and trending for now, it is possible for a shift in consumer sentiment to hurt its top-line. Furthermore, the company faces continuous competition from other shoe companies such as Deckers Outdoor Corporation (DECK), Converse/Nike (NKE), and Skechers (SKX). While Crocs has a sizeable advantage over all its competitors, this gap may not last forever. Furthermore, while CROX’s management is extremely bullish on its acquisition, it may still succumb to failure to integrate properly. The long-term outlook for HEYDUDE may deteriorate if management is able to properly execute on future revenue growth and EBITDA margin expansion.
In our bear, base, and bull case scenarios, we assume Crocs’ revenues will continue to grow at a CAGR of 6%, 10%, and 14% over the next five years, respectively. Additionally, we assume EBITDA margins of 20%, 24%, and 26%, respectively, and apply exit multiples of 15x, 17.5x, and 20x to reflect the revenue growth and profitability of each scenario. It is worth noting that our bull case is consistent with management’s repeated guidance.
What is interesting is that each scenario presents significant potential upside for CROX, ranging from 48% undervalued to 346.40% undervalued. Given the current macroeconomic environment, it would be prudent to reduce our expectations slightly to account for potential execution issues in the future while still leaving room for upside. Even if we are wrong, any additional upside would be a welcome bonus.
Our bear case considers the possibility of a significant slowdown in revenue growth and a decrease in EBITDA margins, possibly due to changes in customer loyalty or sentiment or increased operating expenses. Our base and bull cases assume continued expansion and penetration into new markets by Jibbitz, sandals, HEYDUDE, and clogs, and strong consumer loyalty. If management’s forecast materializes as expected, CROX would be undervalued by 346%, giving investors an impressive IRR of 34.88% over the next five years. Not too shabby.
The Bottom Line
CROX has gone through an incredible transformation in the past decade. With CEO Andrew Rees leading the way, CROX has experienced strong growth in recent years, driven by its focus on innovation, marketing, and international expansion. With management paving the way to $6B in revenue by 2026 with strong 26% EBITDA margins, CROX presents investors with incredible upside, as much as 346%, due to its high revenue growth and even higher EBITDA margins. Combined with HEYDUDE, we find CROX to be an unstoppable company, and rate it a Strong Buy.
What are your thoughts on HEYDUDE and CROX? Where do you see this company going in the next few years?
BROOMFIELD, Colo., March 7, 2023 /PRNewswire/ — Crocs, Inc. (NASDAQ: CROX), a world leader in innovative casual footwear for women, men, and children, today announced that it will present at the UBS Global Consumer and Retail Conference on Wednesday, March 15, 2023 at 1:00pm ET.
A live broadcast of the Company’s presentation may be found on the Investor Relations section of the Crocs website, investors.crocs.com. A replay of the webcast will remain available on the website following the completion of the conference.
About Crocs, Inc.:
Crocs, Inc. (Nasdaq: CROX) is a world leader in innovative casual footwear for women, men, and children, combining comfort and style with a value that consumers know and love. The Company’s brands include Crocs and HEYDUDE and its products are sold in more than 85 countries through wholesale and direct-to-consumer channels. For more information on Crocs, Inc. please visit investors.crocs.com. To learn more about our brands, please visit www.crocs.com or www.heydude.com or follow @Crocs or @heydudeshoes on Facebook, Instagram, and Twitter.
Category:Investors
Investor Contact: Cori Lin, Crocs, Inc. (303) 848-5053 [email protected]
PR Contact: Melissa Layton, Crocs, Inc. (303) 848-7885 [email protected]
After a devastating 2022, a year that saw the S&P 500 decline 19%, investors are looking for things to bounce back quickly. This means finding companies that have promising futures and that are trading at attractive valuations. One such name is Crocs(CROX -2.48%).
Since reporting its 2022 fourth-quarter financials on Feb. 16, the popular footwear brand has seen its shares slip about 10%. And although they are up 59% over the past six months, the shares are still down nearly 30% from their all-time high. Here’s why investors will regret not buying Crocs on the dip.
Continued business momentum
It’s an accurate assessment to say that Crocs’ business was boosted by the COVID-19 pandemic. In 2020 and 2021, revenue jumped 12.6% and 66.9%, respectively, showcasing a sharp top-line acceleration for a company that was struggling for a few years before the health crisis. The heightened consumer interest in comfortable and affordable attire probably deserves some credit here.
But the strong momentum hasn’t abated. For the just-reported full year of 2022, revenue was up 53.7% year over year to $3.6 billion. Crocs’ financials were bolstered by the success of casual footwear brand HeyDude, an acquisition that was completed about one year ago, which saw its own sales climb 70% compared to 2021 to nearly $1 billion. On the other hand, revenue for the flagship Crocs brand was up just 14.9% thanks to gains in all three geographic regions.
Nonetheless, it’s hard to argue with these numbers given the softer macroeconomic picture that characterized last year and worried investors. Ongoing inflationary pressures, and the higher interest rates central banks are using to combat rising prices, can discourage consumers from spending and borrowing. This makes Crocs’ resilient business model even more impressive.
What really stands out about this company is not just its ongoing revenue gains in an otherwise difficult operating environment but just how profitable this enterprise is. Crocs’ operating margin has trended higher over the past decade, coming in at 23.9% in 2022. This impressive bottom line is why Crocs has been able to repurchase $1.7 billion worth of its stock since 2014, equal to 22% of the current market cap of $7.7 billion.
Rare mix of growth and value
Between 2017 and 2022, Crocs’ revenue soared at a compound annual rate of 28.3%. And diluted earnings per share swung from a loss of $0.41 to a positive $8.71. The stock has followed suit, skyrocketing 830% over the past five years. This remarkable performance easily crushes that of the S&P 500, which produced a total return of 62% during the same time.
Looking ahead, the management team is confident in Crocs’ ability to continue growing at a rapid clip. They expect annual sales to total $6 billion in 2026. Two of the most important ways to achieve this goal are to boost sales of sandals and further penetrate China, the world’s second-biggest footwear market.
Even Wall Street is optimistic about Crocs’ direction. Over the next four years, consensus analyst estimates call for revenue to rise at a compound annual rate of 12.2% between 2022 and 2026, with EPS increasing at a 19.2% average annual clip.
Usually, investors would rightfully assume that a business with Crocs’ tremendous growth history, as well as its bright prospects and outstanding profitability, would result in a share price that is very expensive. Crocs’ price-to-earnings (P/E) ratio was under 8 as recently as November. And even after the stock has climbed 72% in the past six months, shares are still trading at a P/E of just 14 right now. This compares quite favorably to the P/E of 18 for the overall S&P 500.
Based on the favorable long-term outlook of Crocs’ business, coupled with the attractive valuation, it might be a good idea to consider investing in the stock.
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