Will Crocs Fool Everyone Going Forward?

A rainbow of Crocs attempts to draw the eye of consumers.With shares of Crocs (NASDAQ:CROX) trading at around $14.19, is CROX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

When most people hear the word “Crocs” they think of Clogs. This makes sense since Clogs are what got Crocs on the map. However, the problem is that too many people don’t realize that Crocs has been expanding its product line well beyond Clogs. Crocs now has more fashionable fleece-lined shoes, accented boots for cold weather, and much more. Crocs is branching out away from its core product. In the short term, this might seem risky, but in the long run, it’s necessary in order for the company to survive and avoid being a fad. Crocs is turning itself into a casual lifestyle footwear company instead of just a Clogs company. This should attract new consumers over the long haul, but there will be obstacles. We will cover these obstacles in the Trends section.

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For now, it’s important to note that Crocs just announced that Q4 revenue will be $220 million. The estimate was for $219.38 million. Crocs revealed that the company suffered from a difficult holiday sales environment. This is not what investors wanted to hear, which is why the stock got hammered yesterday.

Let’s take a look at some important numbers in order to get a better idea of the Crocs situation…

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio and balance sheet are stellar. With a strong balance sheet and growth, it’s possible that Crocs will become an acquisition target. There are several potential buyers that come to mind. If the stock price continues to drop, it will make Crocs more appealing. Even if no potential buyer makes an offer, the balance sheet shows that Crocs has plenty of room to maneuver.

Debt-To-Equity

Cash

Long-Term Debt

CROX

0.00

$315.06 Million

$11.29 Million

DECK

0.40

$61.64 Million

$274.00 Million

NKE

0.03

$3.53 Billion

$228.00 Million

 

T = Technicals on the Stock Chart Are Mixed

Crocs has performed well over a three-year timeframe. It has outperformed both Deckers Outdoor Corp. (NASDAQ:DECK) and Nike Inc. (NYSE:NKE). However, the past year has been a bad one.

1 Month

Year-To-Date

1 Year

3 Year

CROX

4.76%

-1.42%

-22.53%

97.01%

DECK

3.38%

-4.22%

-54.35%

6.43%

NKE

10.89%

4.13%

10.69%

74.06%

 

At $14.19, Crocs is trading above its 50-day SMA, and below its 100-day and 200-day SMA.   

50-Day SMA

13.63

100-Day SMA

15.11

200-Day SMA

16.21

 

E = Earnings Have Been Steady

Earnings have improved every year since 2008. Revenue has improved every year since 2009.

2007

2008

2009

2010

2011

Revenue ($)in millions

847.35

721.59

645.77

789.70

1.00B

Diluted EPS ($)

2.00

-2.24

-0.49

0.76

1.24

 

When we look at the last quarter on a YoY basis, we see an increase in earnings and revenue.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

274.90

203.71

271.80

330.94

295.57

Diluted EPS ($)

0.33

0.06

0.31

0.68

0.49

 

T = Trends Might Support the Industry

The biggest obstacle at the moment is weak demand overseas. It’s difficult to imagine how this trend will reverse itself. One possibility is that the United States and China continue to recover, which would allow everyone else to benefit from that growth. However, this is a best-case scenario, and realistically, it doesn’t seem possible if we’re talking about sustainability.

Conclusion

Crocs is underappreciated. This is a company with strong margins, plenty of cash flow, a strong balance sheet, an ROE of 24.84 percent, and an interest in making a bigger move into women’s products in 2013. At the same time, Crocs is powerless to change the economic environment. In addition to weakening overseas markets, paychecks for United States consumers are taking a hit. These circumstances will be difficult to overcome.

Long-term, Crocs is likely going to surprise many people, which is meant in a good way. In the meantime, there are too many challenges related to the overall economy for Crocs to excel. Therefore, Crocs is currently a WAIT AND SEE.

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