Should you buy Crocs stock? (August 2023)

Bullish Studio

Crocs stock analysis. Ticker: CROX. Join 9000+ investors: https://www.overlookedalpha.com  Crocs, Inc. is engaged in the design, development, marketing, distribution, and sale of casual lifestyle footwear and accessories for women, men, and children. Its products are sold in more than 85 countries through wholesale and direct-to-consumer channels.   Crocs acquired 100% equity of HEYDUDE in February 2022 which was engaged in the business of distributing and selling casual footwear under the brand name “HEYDUDE.” After this strategic acquisition, Crocs legacy, and HEYDUDE have been the two operating segments contributing:  • Crocs Brand $2.86 billion (74% of LTM revenue) • HEYDUDE Brand $1.02 billion (26% of LTM revenue)  Crocs Brand is further divided into three reportable segments, below is the contribution of each segment in Crocs Brand’s last twelve-month revenue.  #stocks #investing #croxstock #overlookedalpha

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00:00 Crocs reported earnings last month and the stock tumbled 14% taking the stock price to

00:05 just below $103 a share. At that price the company has a market cap of $6.3 billion.

00:12 Its got $200 million of cash and $2 billion of debt so the enterprise value is $8.1 billion.

00:18 Revenue over the last 12 months is $3.9 billion which is 39% higher than at the same time

00:23 last year. And that's thanks to Crocs 100% acquisition of the Hey Dude brand. The Hey

00:29 Dude brand now contributes 26% of total revenue. Net income is $669 million with $1.1 billion

00:36 of EBITDA and $750 million of free cash flow. And stock based compensation is minimal at

00:43 only $30 million. So Crocs is now valued at 8 times EBITDA, 10 times earnings and 11 times

00:49 free cash flow. Looking at recent trends you can see that

00:52 earnings has been heading in the right direction even though the stock price has seen some

00:56 wild swings. The PE ratio has fallen to under 10 which is lower than its historical average

01:02 and gross margins have held nicely above 50% which is excellent for a footwear brand. Last

01:07 quarters earnings report was also decent, total sales grew 11% to over $1 billion which

01:12 was a new record and net income margin increased to just under 20%. Sales in Asia also took

01:19 off climbing 33% year over year. So why has the stock fallen? There are perhaps

01:24 three reasons. First Crocs has over $2 billion of long term debt thanks to its acquisition

01:30 of Hey Dude and this is costing the company $170 million of interest payments a quarter.

01:36 Second total sales of Hey Dude grew only 3% which may have been lower than investors were

01:41 looking for. Third many investors are simply sceptical

01:45 of the Crocs brand. They see the shoes as a fad that could deflate at any time and that's

01:50 why the stock rarely trades at a high multiple. However Hey Dude did see solid e-commerce

01:55 growth and today the company refinanced a chunk of its debt pile reducing interest

02:00 payments by half a percent. In truth CEO Andrew Rees has done an exceptional job at Crocs

02:06 transforming the product into one of the most desirable brands around and that brand strength

02:11 can be seen in the companies pricing power. Let's assume Crocs can grow its annual revenue

02:16 by 5% a year for the next 5 years and maintain its net income margin of 20%. That would put

02:22 net income at $1 billion in 5 years time. If the P/E ratio can climb back up to 15 the

02:29 market cap would be $15 billion and that works out to an investment return of 19% per year.

02:35 That looks like a solid return and Crocs looks like a solid buy but these are my personal

02:40 opinions not financial advice and I do hold shares in the company.

02:44 For more detailed investing ideas make sure to visit our website overlookedalpha.com

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