Crocs Clogs: A Valuable Stock Investment Crocs Clogs: A Valuable Stock Investment

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Фасад обувного магазина Crocs в Будапеште в летний день

Why Crocs Clogs Make for a Valuable Stock Investment

As a consumer who values the durability and comfort provided by Crocs (NASDAQ:CROX) clogs at a reasonable price, my belief in the product extends to the stock’s investment potential. The company has exhibited significant pricing power, resulting in a remarkable twofold increase in operating margin from pre-pandemic levels, despite the unparalleled inflation of 2021 and 2022. While North American revenue growth is slowing, Crocs has promising growth prospects in Asia, home to 60% of the global population. Additionally, the stock’s current undervaluation of around 40% presents a compelling investment opportunity, meriting a “Strong Buy” recommendation.

Crocs: A Snapshot

Crocs, along with its subsidiaries, specializes in designing, developing, marketing, distributing, and selling casual lifestyle footwear and accessories for women, men, and children. The company’s fiscal year ends on December 31. Crocs disaggregates its revenues by brands and geographic areas. Notably, the recent acquisition of the HEYDUDE brand in February 2022 signifies the company’s strategic expansion.

CROX revenue by segments

Crocs’ Financial Performance

Over the past decade, Crocs has delivered solid financial performance, with revenue compounding at an impressive 13% CAGR. As the business has scaled up, Crocs has demonstrated strong operating leverage, with the operating margin expanding from 6.7% to 25.3%. The company is not very capital intensive and does not pay dividends, which enables it to generate a wide free cash flow (FCF) margin, even in the wake of significant investments such as the $2 billion acquisition of the HEYDUDE footwear brand. The consistently positive FCF margin and widening operating profitability allow Crocs to maintain a healthy balance sheet, with strong liquidity and an advantageous leverage structure.

Author's calculations

The latest quarterly earnings report released on November 2 exceeded consensus estimates, with a 6% year-over-year growth in revenue and an expanded adjusted EPS. Looking ahead, while there are pessimistic forecasts for Q4, the company’s solid financial performance, resilient operational margins, and a history of positive surprises provide a rationale for optimism.

CROX balance sheet

As the company gears up to release its upcoming quarter’s earnings, it is worth noting that its recognized brand strength, best-in-class profitability, and substantial global recognition provide a solid foundation for future international expansion. Despite decelerating growth in North America, Crocs is experiencing significant traction in Asia, positioning the region as a critical long-term growth driver. With Asia being home to nearly 60% of the global population, the company’s strategic focus on this dynamic market aligns with its growth ambitions.

CROX in asia

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