Market Commentary: 1 Growth Stock That Is Crushing Asia

Crocs (NASDAQ:CROX) has been a roller-coaster of an investment, to say the least. From lows of $10 in 2020 to highs around $180 in 2021 and back under $50 again in 2022, the share price has bucked investors around like a wild bull at a county fair.

And despite falling far short of the market this year – down 12% versus the market up 16% – CROX has a lot going for it as you’re about to discover.

Growing Like a Weed, Still

Crocs recorded an 11.2% uptick in revenue in the latest quarter to eclipse the billion dollar in quarterly sales mark for the first time. A staggering 39% of their recent quarterly revenue stemmed from online channels.

That kind of robust digital presence not only amplifies visibility but also fosters direct consumer relationships, both of which are critical for long-term growth.

Crocs isn’t just crushing top line sales but is doing so with an astonishing gross margin of 57.9% last quarter, outperforming other footwear brands like Allbirds, which posted a 42.8% gross margin. Clearly, consumers are willing to pay premium prices for Crocs products, enabled by cost-efficient design and manufacturing strategies.

This profitability isn’t a flash in the pan either. Crocs posted a 12-quarter high in operating income of $318 million last quarter, and enjoys a cash balance of $166 million on its balance sheet. It must be said, though, that $2.2 billion in total debt isn’t a particularly comfortable spot for the firm relative to cash levels.

An Unbeatable Bargain?

Currently trading at a trailing P/E ratio of 8.6, Crocs presents an irresistible value proposition. Analysts seem to agree and forecast annual sales will hit $4.5 billion over the next couple of years.

Together with its expansion strategy in Asia, investors have much to be excited about. Speaking of Asian expansion, it has been a driving force for the firm’s quarterly revenue hike to $1.072 billion.

The company’s HeyDude brand, which is rated highly by independent bodies, has doubled its sales over the past two years, but admittedly that slowed down to under 3% on a year over year basis last quarter. Regardless, the company’s strategy to sell directly to consumers has been a raging success and enjoyed growth rates approaching 31%.

Future Prospects

Over the past 12 quarters, Crocs has grown sales from $361 million to over $1 billion. The journey hasn’t been all roses and sunshine given the $2 billion debt burden saddling it down. Nevertheless, gross margins and operating income remain highly impressive relative to peers. And management is making a concerted effort to lower the debt burden.

Given the company is trading at a P/E ratio of just 8 and change, now seems to be a very interesting time to consider Crox for a long-term hold. Our analysis suggests as much as 54% upside to reach intrinsic value.