Crocs (NASDQ: CROX) designs, develops, manufacturers, markets, and distributes casual lifestyle footwear and accessories. It offers a wide variety of products that include flips, sandals, wedges, charms, and shoes under the Crocs brand name. The company sells these products in approximately 90 countries via a network of wholesalers, retail stores, e-commerce sites, and third-party marketplaces.
Crocs was founded in 2002 and it has sold 720 million pairs of shoes to date. Right now, the company is valued at a market cap of $5.77 billion and is down 46% from record highs, allowing investors to buy the dip.
The bull case for CROX stock
Despite the ongoing pullback, CROX stock has returned close to 400% to investors in the last 10-years, outpacing the S&P 500 which is up 295% since February 2012. In Q4 of 2021, the company’s management expects sales to grow by 27% year over year to $523 million. While the top-line has decelerated in Q4, its total sales are poised to surge by 63% in 2021, compared to $1.39 billion in 2020.
Crocs is scheduled to report its quarterly earnings report on February 16th and investors will be watching closely to see how the company will tide over supply chain disruptions and rising costs.
Until now, Crocs has leveraged air freight to ship products and avoided relying on congested ports on the West Coast to limit supply chain issues. Further, it's flagship product which is the foam clog sneaker is very easy to assemble, allowing Crocs to ramp up production when it had to shift manufacturing facilities to other countries.
Crocs also reported a gross margin of 64% in Q3 suggesting it enjoys pricing power in case inflation associated with input costs continues to gain pace. In the last earnings call, Crocs CFO
Anne Mehlman emphasized, “We do have some price increases that we took this year that will flow through into next year, and we're proactively looking at other measures and things that we can do to kind of offset any inflationary pressures.”
The bear case for Crocs investors
One of the biggest risks with owning a popular brand such as Crocs is that it could easily fall out of favor with customers. The company already experienced declining sales between 2015 and 2017 which means it has been a bumpy and turbulent ride for long-term investors. Further, more than 80% of Crocs sales are derived from a single item which does not provide it with enough room for innovation.
Crocs has benefitted from surging consumer interest as its products are affordable and comfortable, making it a perfect “pandemic product” as people had to largely stay indoors. However, as the world opens up and restrictions have eased, the demand for Crocs products could take a hit.
What next for CROX stock and investors?
While top-line growth is bound to decelerate after revenue surged over 55% year over year in each of the last four quarters, Crocs remains a top brand with a loyal customer base. It recently acquired HeyDude which will enable the company to diversify revenue streams, indicating the latter will not be overly dependent on the success of its flagship product.
Analysts tracking CROX stock expect its sales to touch $2.31 billion in 2021, an increase of 67% year over year. Comparatively, its sales might also rise by 45% to $3.35 billion in 2022. Its adjusted earnings per share are forecast to rise from $3.22 per share in 2020 to $9.9 per share in 2022.
So, CROX stock is valued at a forward price to 2022 sales multiple of less than 2x and a price to earnings ratio of 10x which is really attractive given its growth forecasts. Wall Street also expects CROX stock to more than double in market value in the next 12-months.