Insights

Crocs Stock Has a Lot to Prove on Thursday

One of last month’s more surprising winners was Crocs (NASDAQ: CROX). Shares of the company with the distinctive and polarizing footwear soared 47% in July. It will get a chance to earn those gains — and possibly build on them — when it steps up with fresh financials this week.

Crocs reports its quarterly results before the market opens on Thursday. Recent momentum has clearly been bullish, but even after last month’s spike the stock is still down 40% so far in 2022 (and nearly 60% below the all-time high it hit in November). This week’s update will go a long way in dictating if the stock keeps climbing its way back out of the hole it has gotten itself into over the past nine months. 

Image source: Crocs.

Walking a mile in Crocs’ shoes

There are some pretty good reasons to be optimistic, despite the heightened expectations following last month’s surge. Crocs continues to be one of the cheapest consumer stocks relative to its growth rate. The shares are trading for just seven times this year’s projected earnings. The earnings multiple drops to six if we look out to analyst targets for next year.

Crocs is growing a lot faster than those single-digit P/E ratios would suggest. A $2.5 billion acquisition that closed in mid-February is inflating its current top-line growth. Crocs is projecting a 52% to 55% revenue pop this year, but it might lower that forecast on Thursday. Analysts think that the top line will move only 50% higher in 2022. The purchase of casual-shoe maker Hey Dude accounts for most of that incremental growth, but Crocs still sees its namesake brand’s organic growth rising 20% this year. Wall Street sees growth slowing to 13% next year as we lap the Hey Dude acquisition, but that’s still double-digit growth that is twice the rate of its forward P/E ratio. 

The fear surrounding buying into Crocs is that the brand is trendy and faddish, but history has been kind. Crocs has been around for two decades. It has delivered positive annual sales growth 75% of the time. It has also posted double-digit annual top-line gains or better 60% of the time — and this will be the fourth year in a row of double-digit increases. 

With a growing number of celebrities sporting the cozy footwear in public, the fashion stigma is fading. Comfort is the new fashion, and that’s just fine for Crocs. 

Thursday’s report could still prove choppy. With 42% of Crocs’ sales stemming from outside of North America in the previous quarter, the rising dollar will sting results as reported in U.S. currency. Some retailers have also complained that folks are spending more money on food, leaving less for general merchandise including shoes. Will the headwinds cause Crocs to post weaker-than-expected sales growth and see an end to its streak of exceeding Wall Street profit targets?

Crocs continues to be one of the more interesting shoe stocks. It offers something for value, growth, and even contrarian investors. With a big earnings update coming soon, the stock will definitely be on the move in Thursday’s trading.

Rick Munarriz has a position in Crocs. The Motley Fool recommends Crocs. The Motley Fool has a disclosure policy.

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