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Crocs (NASDAQ:CROX) is a footwear company that has been on a tear in recent years. Crocs shares have more than trebled in the past five years, and are currently climbing again after a sharp decline in 2022.
What’s causing the growth?
There are a number of factors that have contributed to Crocs’ strong performance. First, the company has benefited from the growing popularity of its shoes. Crocs are known for their comfort and versatility, and they have become increasingly popular as a fashion statement. In 2022, Crocs’ net sales increased by 61.1% to $945.2 million. This growth was driven by strong demand for the company’s clogs, sandals, and Jibbitz charms.
Crocs has recently expanded its product line to include a wider variety of shoes, including sandals, boots, and clogs. This has helped the company to appeal to a wider range of consumers. In 2022, Crocs launched a new line of kids’ shoes, as well as a line of shoes for nurses and medical professionals.
Crocs has been extremely aggressive in its international expansion. The company now sells its shoes in over 90 countries, and it is growing its presence in emerging markets. In 2022, Crocs’ international sales increased by 82.2%
How are the fundamentals?
The fundamentals of the company also look to be improving steadily. Crocs has a strong balance sheet with a significant cash balance. The company also has a low debt-to-equity ratio, which makes it less risky for investors. Crocs has a experienced and capable management team that has a proven track record of success.
A discounted cash flow calculation suggests the shares may be 67% undervalued at present, with a calculated fair value of $303.56.
Will the growth continue?
Analysts are expecting continued growth in the earnings of the company, forecasting 11% in the next five years. However, there are also some notable risks to consider before investing in the shares. One risk is that the company’s popularity could fade. Crocs have been criticised for their ugly appearance, and they are not as fashionable as some other brands of shoes. If the trend wears off, the stock could decline in value.
Another risk is that Crocs could face increased competition. There are a number of other companies that are making comfortable and versatile shoes, and these companies could start to take market share. If Crocs’ competitive advantage erodes, the share price could suffer. However, the company has a number of competitive advantages, such as strong brand recognition, a unique product, and global reach.
One red flag I see in the company concerns inside selling from the management team. In the last year, the company’s executives sold over $10m in shares. This may be entirely unrelated to expectations of the company’s performance, but does not inspire confidence for current or new investors.
Am I buying Crocs shares?
Overall, Crocs is a well-positioned company with a strong track record of growth. Crocs shares have been supported by growth in both the business fundamentals, and in an rise in product popularity. With company fundamentals steadily improving, and the Crocs shares appearing to be undervalued at current prices, I am looking to buy shares in the next few months.