Crocs Stock: Stunning Growth Ahead (NASDAQ: CROX)


Investment thesis

fangs (NASDAQ:CROX) is a lifestyle footwear and accessories company. They are a leader in innovative casual shoes that combine comfort and style. Sales of Crocs products are increasing across the world (North America, Asia, Europe, Latin America, etc.) and their direct-to-consumer distribution channel is working very good. Some investors have called Crocs a “pandemic” stock, which has sent the stock price down significantly since late last year. I think that’s the mistake of the market, and I think Crocs is a great investment option for the growth investor because:

  • Crocs (now including HEYDUDE) is more popular than ever and revenue growth remains impressive.
  • The strong brand recognition and the formidable combination of comfort and style give a definite economic advantage. Their profit margins are well above the industry median.
  • They are currently rated as a declining company, which couldn’t be further from the truth.

Strong revenue growth

Crocs has grown rapidly around the world and across all of its product lines. They have positioned their brand image as a very unique combination of style and comfort, and their entire product line is growing at a very high rate. Plus, their dual-channel approach (wholesale and direct-to-consumer via e-commerce) fits right in with current shopping trends. Basically, the Crocs leadership team does a great job of assessing and responding to trends in style, marketing, and operational efficiency.

Crocs Growth Summary

Crocs Growth Summary (Crocs Investor Relations)

In the last quarter, their revenue grew 56% at constant currency, defying their “pandemic” title tag. Additionally, the acquisition of HEYDUDE at the end of last year has so far proven to be a superb strategic decision. HEYDUDE exceeded Crocs management’s expectations, achieving sales of $232 million (almost double last year). Many investors were concerned that HEYDUDE would not be easily integrated into Crocs, so the market reacted badly when Crocs announced the acquisition. However, Crocs has proven the naysayers wrong so far. I expect Crocs to continue its impressive growth in the future.

Solid economic swing and profit margin

Crocs does an amazing job of increasing brand awareness through marketing. Fashion magazine Vogue featured the Crush sandal and the marketing team launched a metaverse digital marketing campaign featuring rapper Saweetie. Crocs shoes hit multiple points for customers by combining practicality, comfort, customization (with jibbitz), durability and cool factor, attracting a wide range of customers in different regions.

Vogue article featuring Crocs

Vogue article featuring Crocs (vogue)

This strong and improved brand awareness and unique design has created a solid economic moat for the company, and this is reflected in their profit margins. Overall (EBIT margin, EBITDA margin, and net profit margin), Crocs’ profit margins are well above the industry median. Most of them are more than double the industry median. The strength of the Crocs brand is well demonstrated by these metrics, showing that the company is able to charge a premium for its products.

Crocs profit margin

Crocs profit margin (Looking for Alpha)

Favorable evaluation

Some investors predicted that recent growth hinged on the pandemic environment and the stay-at-home trend, meaning revenues would start to fall as soon as everyone started leaving their homes. Moreover, the acquisition of HEYDUDE was not received positively by the market. That double whammy sent Crocs shares down more than 50% from their November 2021 peak, and they are now rated as a declining company.

However, looking at their revenue growth trajectory, including HEYDUDE, they are clearly not a pandemic stock, and the acquisition of HEYDUDE will be very successful. Labeling Crocs a “pandemic” stock would be a mistake, and I expect the market to realize that soon. The stock price and valuation will increase to reflect the true value of Crocs as a result.

Estimation of intrinsic value

Since my last post, Crocs revenue has increased dramatically. I updated my DCF model to estimate the new intrinsic value of Crocs. For the estimate, I used operating cash flow ($409M) and the current WACC of 8.0% as the discount rate. For the base case, I assumed 20% cash flow growth (5-year average) for the next 5 years and zero growth thereafter (zero terminal growth). For the bullish and very bullish case, I assumed cash flow growth of 22% and 25%, respectively, for the next 5 years and zero growth thereafter.

The estimate revealed that the current share price represents a significant upside. Due to the mislabeling as a pandemic stock and the negative reaction to the HEYDUDE acquisition, Crocs is trading at a substantial discount to its true value. Investors should take advantage of this opportunity.

Price target Upside down
Base case $156.91 101%
Bullish case $168.80 117%
Very bullish case $188.08 141%

The assumptions and data used for the price target estimation are summarized below:

  • WACC: 8.0%
  • Cash flow growth rate: 20% (base case), 25% (bullish case), 30% (very bullish case)
  • Current cash flow: $409M
  • Current stock price: $77.94 (08/12/2022)
  • Tax rate: 20%

Cappuccino Stock Rating

Weighting CROSS
Strength of the economic gap 30% 4
Financial solidity 30% 3
Growth rate vs sector 15% 5
Safety margin 15% 5
Industry Outlook ten% 4
Globally 4.0

economic gap

Crocs does a great job of creating a unique brand. Their products stand out and allow customers to personalize with jibbitz, which resonates with the younger generation. The brand also appeals to young professionals who want comfortable shoes for working from home. Their digital marketing campaign is also very effective.

Financial solidity

Due to the recent acquisition of HEYDUDE, their balance sheet is not in the best shape at this stage, carrying a relatively large debt compared to their cash. However, Crocs is far from any financial distress. Their business is generating tons of cash right now, so I don’t expect any issues in the future.

Rate of growth

Crocs and HEYDUDE are the most popular brands on the market, and they are growing all over the world. Their revenue growth is far ahead of the industry, and I expect that to be the case for some time.

Safety margin

Being mislabeled as a pandemic stock and the general negative sentiment towards growth stocks has created a great opportunity for investors interested in Crocs. Their stocks are significantly undervalued relative to their intrinsic value.

Industry Outlook

The footwear market will continue to grow, and the fashion accessories market will also grow. Growth won’t be explosive like some in the tech industry, but it will trend steadily with population growth and overall economic growth.


The fashion industry is changing at a rapid pace and consumer tastes can change without warning. Crocs’ “ugly-chic” design currently appeals to a wide range of customers around the world, but if management misinterprets future trends, the company’s growth will be compromised. Therefore, investors should pay close attention to their quarterly figures and market trends.

As Crocs used a substantial amount of cash ($2.0 billion) to acquire HEYDUDE, its balance sheet now carries significant debt ($3.0 billion), balanced by only a relatively small amount of cash ($187 million). dollars). Their liquidity (current ratio of 1.94x) is down compared to competitors. They are far from being in financial difficulty, but the investor should be careful about their level of debt and the cost of servicing their debt in the future.


Crocs has been a terrific growth company over the past two years. Riding the telecommuting and remote work movement has allowed their growth to explode around the world. Outstanding marketing campaigns and distinctive product aesthetics have created a substantial moat for the company, and I expect that to continue in the future. High debt levels are something to watch out for, and the fast pace of the fashion industry creates some risk. However, I believe Crocs is significantly undervalued by the market at this point, and I expect a significant return for those investing.

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