This Footwear Stock Is a Surprisingly Good Value

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Typically, investors think of Nike (NYSE:NKE) when they think about footwear stocks. However, if you don’t mind investing in a footwear manufacturer that makes unusual-looking shoes, check out Crocs (NASDAQ:CROX).

Crocs stock is a hidden value pick, and you don’t have to actually like the company’s shoes to appreciate its financial strengths. Furthermore, Crocs is a pioneer in the footwear industry, having brought to market the HEYDUDE shoe-slipper crossover brand.

What’s important is to judge the data instead of the shoes. Even if you don’t happen to like Crocs’ shoe designs, its stock can still be investable because the company is reasonably valued.

Crocs notches another earnings beat

Crocs is consistently profitable and has a stellar track record of quarterly earnings beats. Furthermore, the company maintained that track record on Tuesday with another Street-beating quarterly performance.

Let’s start with the basics. For the first quarter of its fiscal 2024, Crocs grew its revenue 6.2% year over year to $939 million; this represents a quarterly record for the company. In contrast, the analysts’ consensus estimate called for Crocs to generate $884 million in quarterly revenue.

Moreover, the company improved its balance sheet, increasing its cash and cash equivalents from $126 million as of March 31, 2023 to $159 million as of March 31, 2024. During that same time frame, Crocs also reduced its capital expenditures (capex) from $28 million to just $16 million.

Additionally, the company has demonstrated notable margin improvement. From Q1 2023 to Q1 2024, Crocs’ gross margin increased from 53.9% to 55.6%; meanwhile, its adjusted gross margin grew expanded 54.2% to 56%.

So far, so good. CEO Andrew Rees celebrated Crocs’ “exceptional first quarter, led by mid-teens growth of our Crocs Brand, driven by robust consumer demand both in North America and in international markets.” More specifically, the company’s bread-and-butter Crocs Brand revenue increased 14.6% year over year to $744 million.

Evidently, those unusual-looking Crocs Brand shoes are moving off the shelves outside of the U.S. Thus, Crocs Brand international revenues grew 21.3% year over year to $361 million.

To top it all off, Crocs reported adjusted earnings of $3.02 per share, easily beating Wall Street’s consensus estimate of $2.25 per share. Again, this adds to the company’s track record of quarterly EPS beats, so there’s no need to worry about this footwear manufacturer’s financial health in 2024.

The main concern in Crocs’s quarterly report

In light of the foregoing figures, Rees certainly earned the right to brag about Crocs’ first-quarter results.

“Our record revenue, industry-leading gross margins and the power of our diversified business enabled us to raise our full-year adjusted diluted earnings per share outlook,” Rees declared.

In that statement, Rees hinted at Crocs’ full-year 2024 EPS guidance boost. Previously, the company had guided for FY2024 adjusted earnings of $12.05 to $12.50 per share; currently, the company’s outlook calls for earnings of $12.25 to $12.73 per share. The midpoint of the new range is $12.49, which comes in slightly above Wall Street’s consensus forecast of $12.47.

However, before you put on some Crocs and run out to buy the company’s stock, note that its quarterly report wasn’t perfect in every way. As it turns out, Crocs’ HEYDUDE Brand revenue declined 17.2% year over year in Q1 FY2024 to $195 million.

Rees clearly sensed the disappointment that investors would feel regarding this other brand.

“We are confident in the long-term opportunity for the HEYDUDE brand and are excited to welcome a new HEYDUDE President to fully unlock its future potential,” Rees assured investors.

Oddly, Crocs’ press release didn’t mention HEYDUDE President Terence Reilly by name.

At any rate, Crocs really needs to promote brand awareness for HEYDUDE. This won’t happen overnight, but investors will undoubtedly want to see some improvement in the brand’s revenue during the current quarter.

If the shoe fits, wear it

Does Crocs fit the description of a good value? The company has solid fundamentals, including a decent cash position and improving margins. Still, I’d like to apply an old-school metric to the stock right now.

Dusting off the old calculator, I determined that Crocs’ total EPS for the past four quarters is $3.59 + $3.25 + $2.58 + $3.02, or $12.44. If the company’s share price is $135, then its trailing 12-month price-to-earnings (P/E) ratio is $135/$12.44, or 10.85. For reference, the sector’s median adjusted/non-GAAP P/E ratio is 14.6.

Consequently, Crocs stock does appear to fit the bill as a great value pick. Feel free then to buy a few shares — while keeping an eye on the HEYDUDE brand to see if Crocs can successfully grow its revenue.