Crocs Inc. (CROX)

CROX we think has enough going for it and the valuation is so low it is a HOLD. It is not our ideal situation and it could potentially become a value trap. But we think it is ripe for some activist investors to get involved. Its brand remains strong, and global, and cash flow is good. It just needs better execution. 
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Weak outlook for the name. Q3 guidance calls for 10% revenue growth going forward, earnings forecast slightly negative. He needs to see double-digit earnings growth for companies. US tariff of 28% on Vietnamese production pressures margins. Fashion trend for ugly shoes is fading.

We think it certainly has potential, but the potential will come from a valuation shift OR faster growth than expected. Right now, analysts expect little growth, with Hey Dude continuing to be a drag on overall results. But, it is less than 8X earnings, and any positive developments could still see the stock do very well. Debt is coming down, and this also could see a valuation boost. So, we still think there is potential but in terms of pure earnings growth only and without regard to valuation and other factors  it should not rank highly. 
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The core Crocs brand continues to look strong with HeyDude (HD) being the weak spot in the last two quarters. Markets will likely need to see the HD business normalize before getting too interested which will take at least one more quarter.  Management has acknowledged that the business line has hit a few speedbumps as they have made adjustments to have it better align with their overall business. They have also been going back to share repurchases recently, which could act as more of a near-term catalyst as the company sorts out the HD issues.

We still think the risk/reward here looks attractive and shares trade at a roughly 14% earnings yield. We would be reluctant to sell at these levels, but it might still take another quarter or two before markets really start paying attention again. 
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They thrived during Covid, because people wore informal-wear, but then got killed after Covid. It bottomed last summer, but recovered 170% since then and 15% YTD. They bought the Hey Dude brand, which helped. They reported an excellent quarter last Thursday.

(A Top Pick July 30/12. Down 6.48%.) Stock is down because they reported a weak quarter. Trading at only 8X the shares earnings. Stock is somewhat seasonal so you’ll see earnings and revenues ramp up in the spring and summer. $18 is very easily attainable.

Brought in a new management team. He thinks the stock is cheap. They have a great balance sheet. People just think of the clogs. That is only 48% of revenue. They do other kinds of shoes. Growing rapidly in Asia. Is a sustainable model now.