Shares of Crocs (NASDAQ: CROX) surged during the pandemic due to the increased demand for comfortable footwear. While the demand for its products has sustained, the stock has witnessed a significant sell-off.
CROX stock has dropped about 57% this year. Moreover, it has fallen over 69% from its 52-week high. An increase in the number of headwinds impacting consumer spending (including record-high inflation and rising interest rates), supply challenges, and concerns around balance sheet leverage due to the recent acquisition of HEYDUDE are to blame for the decline in CROX stock.
Now What?
Thanks to the ongoing momentum in the business, Crocs expects its top line to increase by 52% to 55% year-over-year in FY22. Furthermore, revenue for the Crocs brand is expected to exceed 20% growth.
Moreover, Crocs now expects to deliver an adjusted operating margin of 26%-27% in FY22, which compares favorably to its prior guidance of 26%.
Higher revenues and improved margins are expected to drive earnings higher. Crocs now expects adjusted EPS to be in the range of $10.05 to $10.65, up from the previous guidance of $9.70 to $10.25.
Highlighting the substantial decline in CROX stock, Robert W. Baird analyst Jonathan Komp stated, “We attribute the stock’s weakness to company-specific concerns regarding sustaining 2020-2022E financial outperformance and the rationale for acquiring HEYDUDE (and implications for Crocs’ growth), along with macro-driven concerns about global consumer spending, inflation (cost of goods tied to natural gas), and higher debt ($2.9B following HEYDUDE acquisition).”
However, Komp maintained his bullish stance and added that CROX’s solid fundamentals are not reflected in the stock. Meanwhile, the valuation has become “too low for good growth story” like CROX.
Including Komp, five analysts have rated CROX stock a Buy. It has also received three Hold recommendations. The average Crocs price target of $108.13 implies 87.2% upside potential to current levels.
Bottom Line
The ongoing momentum in the Crocs brand and the company’s ability to protect and grow its margins augur well for growth. Further, the significant correction in price makes it a compelling investment.
However, the increase in the number of factors impacting consumer spending could negatively impact its ability to sustain growth.
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