Peter Imhof Crocs Inc. CROX-Q TOP PICK Jul 30, 2012

(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.

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.

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. 
Unlock Premium - Try 5i Free

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. 
Unlock Premium - Try 5i Free