Should you buy Crocs stock?

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Ugly shoe company Crocs has a current market cap of 7.9 billion.

After the acquisition of fellow shoe brand Hey Dude the company holds 2.6 billion in long term debt and 143 million in cash.

That gives the company an enterprise value of 10.4 billion.

Revenue over the last 12 months is 3.2 billion dollars, with net income of 557 million with just over 9 dollars earnings per share. And the company recently raised guidance to 3.55 billion for the full year.

Which means the company is valued at 3.3 times revenue or 14 times earnings.

That makes Crocs reasonably cheap when you consider the company has grown earnings 18% per year over the last 10 years and grown revenues 10% per year.

One reason for the lower multiple is that the company used to be a flop. From 2012 to 2018, revenues went nowhere and earnings per share was often negative.

A lot of credit goes to Andrew Rees who became CEO of Crocs in 2017. Rees set in motion a turnaround by refocusing the brand, updating the product and beginning a series of celebrity collaborations.

Two years after Rees took over, revenues grew 13% year over year while net income surged by 140%. But the real boost came during the pandemic. In 2021, revenue jumped by 67% and net income surged to 726 million.

Another reason for the lowish multiple is skepticism over the Hey Dude acquisition. The shoes could be a fad and the 2.5 billion dollar purchase resulted in a credit downgrade from rating agencies.

However, Crocs debt doesn’t mature until 2029 giving the company plenty of time to deleverage.

And Hey Dude is expected to add an additional $1 billion to Crocs top line revenue at an operating margin of 26%. The brand fits like a glove and also provides diversification for the company.

Let’s assume Crocs can grow earnings per share by 15% per year over the next 10 years then trade at 15 times earnings. That would put the market cap at roughly 34 billion in 10 years time which works out to an investment return of 15.7%.

In hindsight, Crocs at $50 last year looks like a steal. But the stock still looks like good value and I’ll probably buy the stock on a dip.

But these are my personal opinions, not financial advice. For more detailed investing ideas visit our website overlookedalpha.com

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