Stock Analysis & Ideas

Crocs: Steeply Undervalued Despite Strong Growth Momentum

Story Highlights

Crocs has retained very strong growth momentum, with its recent acquisition of HEYDUDE fueling the momentum. Shares appear very cheap considering the company’s sky-high margins, management’s outlook, and overall profitability prospects. Large buybacks resuming by mid-year next year should translate into a powerful catalyst for shares to appreciate and shareholder value to grow, especially if executed at their current price levels.

Crocs (CROX) designs, markets, and manufactures casual lifestyle footwear and accessories for all. Crocs has been one of my favorite growth investments during the past couple of years, with the stock undergoing a spectacular transformation during the period. The company has been gaining increased consumer approval, with its previously “ugly” clog shoe penetrating the fashion culture.

In the meantime, Crocs has been diversifying into other types of shoes, while its recent acquisition of HEYDUDE has given it exposure to another rapidly-growing brand. In my view, Crocs remains well-positioned to produce outstanding shareholder value, going forward.

While shares of Crocs have plunged from their 52-week highs of around $183, I have only seen this as a fantastic opportunity to accumulate shares on the cheap. The company’s latest results once again demonstrated that its ongoing momentum remains unfazed, while profitably has been strong enough that paying down the debt incurred for HEYDUDE’s acquisition will take place rather quickly.

I remain bullish on the stock.

Q1: Entering Fiscal 2022 on a High Note

Crocs’ Q1 results came in very strong, with the company reporting revenue growth, including both Crocs and HEYDUDE, of 46.7% to $660.1 million on a constant-currency basis. The Crocs brand grew 21.7%, driven by strong DTC (Direct-To-Consumer) growth of 19.7% and digital growth of 23.5%.

The more exciting growth in consolidated revenues was driven by the recently acquired HEYDUDE brand, with management commenting that it has exceeded expectations. HEYDUDE reported revenues of $150 million from February 17th to March 31st, while on a pro forma basis, Q1 revenues came in at $205 million, an increase of 81% year-over-year.

Adjusted operating margins, including both Crocs and HEYDUDE, were once again best-in-class, at 27%. Adjusted diluted earnings per share also increased by an exceptional 37.6% to $2.05, compared to $1.49 for the same period last year. This is quite impressive since the company has incurred additional expenses in order to integrate the HEYDUDE brand with its core operations.

As the company scales and with the full integration of HEYDUDE, we could see adjusted operating margins exceeding 30%, which every single shoe manufacturer should be envious of.

To put the company’s margins into perspective, note that Crocs’, Nike’s (NKE), Adidas’s (ADDYY), Skechers U.S.A.’s (SKX), Steven Madden’s (SHOO), and Shoe Carnival’s (SCVL) gross margins in Q1 stood at 53.7%, 49.9%, 46.6%, 45.3%, 40.7%, and 35.5%, respectively. Thus, Crocs’s profitability prospects remain unparalleled to those of its competitors, considering that some of them have superior production capabilities due to their sheer size.

It’s also important to highlight that Crocs’s growth remains robust across all regions. Thus, the brand is not just experiencing a local phenomenon with sales vulnerable to regional trends fading away. Specifically, sales in the Americas were up 19.5%, Asia Pacific sales were up 22.1%, and Europe, the Middle East, and Africa rose 26.8% on a constant-currency basis versus the prior-year period.

Following better-than-expected results, management raised its previous guidance. They now expect full-year revenues to be roughly $3.5 billion, up from approximately $3.4 billion previously, suggesting year-over-year growth between 52% and 55%.

The company still expects the Crocs brand to deliver revenue growth of over 20%. The rest of the revenue growth is to be supported by HEYDUDE, whose sales on a pro forma basis are expected to be between $840 million and $890 million.

The company is also targeting an adjusted operating margin between 26% and 27% and adjusted diluted earnings per share to land between $10.05 to $10.65.

Valuation & Capital Returns

At the midpoint of management’s guidance, shares of Crocs are currently trading at a forward P/E of 5.4. This is a depressed multiple considering the company’s growth and profitability prospects.

Based on consensus estimates, which forecast an adjusted EPS above the midpoint, the forward P/E stands at 5.3. This is one of the lowest multiple the company has ever traded at despite currently being in the best financial position it has ever been.

In terms of capital returns, the stock has a long track record of stock repurchases. Specifically, since late 2013, the company has repurchased and retired around 1/3 of its shares outstanding.

Buybacks have now been suspended until the company deleverages amid the $2 billion term loan it got into to fund the HEYDUDE acquisition. According to management, buybacks will be resumed when the company’s net debt/EBITDA stands below 2x. CROX expects to reach this point by mid-year 2023.

To highlight how cheap the stock is, assuming buybacks amount close to $1 billion per year (they amounted to $1.02 billion in Fiscal 2021), the company would be repurchasing around 29% of its shares per annum at its current price levels. This should be an incredible catalyst for the stock to trade toward a fairer value sooner than later.

Wall Street’s Take

Turning to Wall Street, Crocs has a Moderate Buy consensus rating based on four Buys and three Holds assigned in the past three months. At $95.00, the average CROX stock forecast implies 70.4% upside potential.


Crocs has retained very strong growth momentum, with its recent acquisition of HEYDUDE further fueling results. Profitability prospects remain excellent, with the potential to improve further as HEYDUDE’s integration progresses.

With the stock trading at a substantial discount and buybacks possibly resuming by next year, Crocs’s investment case appears to be very enticing, in my view.

Read full Disclosure

Tired of arriving late to the Big Returns Party?​
Most investors don’t have major gainers like TSLA or NVDA on their radar from the start.
The profusion of opinions on social media and financial blogs makes it impossible to distinguish between real growth potential and pure hype.
​​For the past decade, we have developed and perfected technology designed to help private investors, just like you, find the best opportunities, with the greatest upside potential, in any financial climate.​
Learn More