Amid macroeconomic headwinds, which stem from higher interest rates, inflationary pressures, and recession fears, some businesses continue to post healthy results. Crocs (CROX +3.80%), the maker of popular foam clogs, is one such enterprise, as its latest quarterly numbers were better than analysts expected.
Ongoing financial success has made this booming footwear stock a massive winner in recent times, as it has more than quadrupled in just the last five years. This crushes the gains of the Nasdaq Composite index.
But investors who have missed the remarkable performance shouldn't worry. Crocs stock could still skyrocket going forward.
Business momentum
Crocs generated revenue of $960 million in the three-month period that ended Dec. 31, 2023, which was up less than 2% year over year. While the flagship Crocs brand posted double-digit gains, HeyDude is facing some troubles. Its revenue dropped more than 18% in Q4, but management is confident about the segment.
"We are starting off 2024 from a position of strength and taking the opportunity to reinvest into several key strategic areas as we continue to lay the foundation for durable market share gains," CEO Andrew Rees said in a statement.
Looking ahead, executives expect revenue to rise between 3% and 5% in the current fiscal year. Investors might be displeased with the single-digit potential gain, but it's worth pointing out that Crocs sales in 2023 were substantially higher than they were in pre-pandemic 2019. This is still a business in full-on growth mode.
What's particularly special about Crocs is just how profitable it is. The operating margin came in at 26.2% last year. That's much better than industry heavyweight Nike.
Crocs is doing a great job at getting its finances in order, which is only possible thanks to the copious amount of free cash flow being generated. The business was able to pay down $666 million of long-term debt in the last 12 months, bringing its net leverage ratio down to 1.3 from 2.1 the year before.
NASDAQ: CROX
Key Data Points
Strong brand
Crocs remains a consumer favorite thanks to how well the brand is resonating. This is the company's key competitive advantage that spurs interest for its footwear products across the globe.
According to Piper Sandler's fall 2023 Taking Stock With Teens survey, Crocs and HeyDude were the sixth and seventh most popular footwear brands among the Gen-Z demographic. They were able to gain share year over year, an encouraging trend that bodes well for the company's future.
The leadership team has gotten creative with its marketing strategy. A big part of raising brand awareness centers on innovative designs and partnerships.
It also helps that Crocs is running a tighter ship when it comes to merchandising. The company's $385 million inventory balance at the end of 2023 was 18% lower than 12 months prior. This leads to fewer discounts and less promotional activity, which helps maintain margins and brand status in the marketplace.
Compelling valuation
Despite the stock's incredible past performance, it still trades 36% below its all-time high. And it sells at a dirt-cheap valuation.
Investors can scoop up shares of Crocs at a price-to-earnings (P/E) ratio of just 9. That's less than half the multiple of the S&P 500, and it's a sizable 34% discount to Crocs' trailing-five-year average P/E.
This seems like a no-brainer buying decision, but it makes you wonder why the stock is trading at such a low valuation. Investors should focus on the positive attributes, like Crocs' growth trajectory and impressive financials. This business is poised to continue rewarding shareholders over the long term.
