Crocs Stock Still Attractive Despite A 3.5x Rally

Crocs (NASDAQ: CROX), a company designing, manufacturing, and marketing footwear for men, women, and children under the Crocs brand, has climbed a whopping 3.5x in the last twelve months from the levels of $27 to around $99 currently. In fact, the company’s stock is about a solid 136% higher from where it started in 2020 (at $42) even before the pandemic was a significant concern. That said, are further gains likely for the CROX stock? Despite a lot of good news priced in the company’s stock, we believe that it still remains undervalued at a price-to-earnings ratio of about 21x – and could likely see further upward momentum based on its historical multiples in the long run. This is taking into account the sales growth that the company has achieved and is expecting in the coming year.

The Covid-19 crisis has emphasized comfort over style, which led to consumers picking this iconic maker of plastic shoes. It has also become a favorite of health workers and anyone who spends a lot of time on their feet for a prolonged period. Consequently, Crocs posted three consecutive quarters of record revenue (Q3 2020 to Q1 2021) on the back of increased demand, and by the look of things – it is just getting started. The company’s management believes that the demand for the brand is stronger than ever with an expected 2021 revenue guidance of 40% to 50% growth and 22% to 24% in adjusted operating margin for the year.

CROX stock has largely outperformed the broader markets between FY 2019 and now. The retailer’s stock is around 136% higher than it was at the end of FY 2019, compared to 27% growth in the S&P. Our dashboard, What Factors Drove 136% Growth in Crocs Stock Since 2019 End? provides the key numbers behind our thinking, and we explain more below.

Crocs’ stock grew a robust 50% from around $42 at the end of FY 2019 to $63 in FY 2020. The company’s revenues grew 13% from $1.2 billion in 2019 to around $1.4 billion in 2020, driven by a pandemic-related boost. In addition, the shoemaker saw its net income margin expand a massive 1290 basis points to 22.6% during this period. However, the P/E multiple declined from around 25x in FY 2019 to 14x in FY 2020, due to increased earnings. While the company’s P/E is up to about 21x now, we expect the company’s multiple to grow on its recent operating performance and strong guidance for 2021.

How Is Coronavirus Impacting Crocs Stock?

In 2020, Crocs’ revenue was negative through the first half of the year as the pandemic gripped consumers, but it rose back with a 16% increase for the third quarter and an impressive 57% surge during the seasonally potent holiday quarter. To add to this, Crocs’ sales exploded 64% year-over-year (y-o-y) to $460 million in the latest Q1. Meanwhile, adjusted earnings also increased from $0.22 per share in the first quarter of 2020 to a far more stunning $1.49 per share this year. Crocs’ product line has evolved and there is no doubt that Crocs is taking off globally with at least 20% growth across all three of the company’s geographical territories, with the Americas leading the way in Q1. Going forward, the company expects upcoming Q2 revenue growth of +60% to +70% vs. +40% consensus and non-GAAP operating margin of between 21% and 23%.

For further comparison among peer groups, it is helpful to see how they stack up. Crocs Stock Comparison With Peers shows how Crocs compares against peers on metrics that matter.

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