Crocs: Market Overreaction Creates A Buying Opportunity

seekingalpha11-01

Crocs stock is undervalued despite strong brand growth, presenting a potential buying opportunity.HEYDUDE's struggles impact results, yet CROX's core brand momentum remains solid.Crocs’ cash flow and ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2480044438?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1587646717/image_1587646717.jpg","is_english":true,"pubTime":"2024-11-01 11:45","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2480044438","market":"hk","top_or_hot":-1,"title":"Crocs: Market Overreaction Creates A Buying Opportunity","media":"seekingalpha","content":"<div>\n<p>Crocs stock is undervalued despite strong brand growth, presenting a potential buying opportunity.HEYDUDE's struggles impact results, yet CROX's core brand momentum remains solid.Crocs’ cash flow and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4731910-crocs-stock-market-overreaction-creates-buying-opportunity\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Crocs: Market Overreaction Creates A Buying Opportunity</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCrocs: Market Overreaction Creates A Buying Opportunity\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-01 11:45 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4731910-crocs-stock-market-overreaction-creates-buying-opportunity><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Crocs stock is undervalued despite strong brand growth, presenting a potential buying opportunity.HEYDUDE's struggles impact results, yet CROX's core brand momentum remains solid.Crocs’ cash flow and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4731910-crocs-stock-market-overreaction-creates-buying-opportunity\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4585","symbol_name":"ETF&股票定投概念","start_time":0,"source_url":"https://seekingalpha.com/article/4731910-crocs-stock-market-overreaction-creates-buying-opportunity","article_id":"2480044438","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1587646717/image_1587646717.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2480044438","pubTimestamp":1730432733,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Crocs stock is undervalued despite strong brand growth, presenting a potential buying opportunity.HEYDUDE's struggles impact results, yet CROX's core brand momentum remains solid.Crocs’ cash flow and ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4585":"ETF&股票定投概念","CROX":"卡骆驰","BK4588":"碎股","BK4146":"鞋类","LU1064131342.USD":"Fullerton Lux Funds - Global Absolute Alpha A Acc USD","LU1988902786.USD":"FULLERTON LUX FUNDS GLOBAL ABSOLUTE ALPHA \"I\" (USD) ACC","LU2264538146.SGD":"Fullerton Lux Funds - Global Absolute Alpha A Acc SGD"},"translate_title":"Crocs：市场过度反应创造买入机会","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CROX":0.9},"content_text":"Crocs stock is undervalued despite strong brand growth, presenting a potential buying opportunity.HEYDUDE's struggles impact results, yet CROX's core brand momentum remains solid.Crocs’ cash flow and buybacks support long-term shareholder value despite market concerns.   ArtMarie  After reporting Q3 earnings, Crocs (NASDAQ:CROX) stock fell by more than 20%. While I agree with the market that this quarter was lower than expected overall and that this even changes the fair value a bit, I disagree with the magnitude. The drop means that Crocs is now trading for a market cap of ~$6.5 bn, while even after conservative revisions, my model indicates a net income close to $770 million for 2025, even though this is below consensus, it is already equivalent to a multiple of 8.5x. In other words, the market has overreacted to Crocs' current quarter, indicating a huge lack of faith in the sustainability of the company's financials and opening up space for a buying opportunity. Q3 Earnings Show Mixed Results for Crocs Just from the Q3 highlights, it's already possible to have mixed feelings about this Crocs quarter. The Crocs brand maintained very strong momentum, with growth of 8%, and EPS advanced by 11% to $3.60 - remembering that the stock is trading today at ~$110, so this EPS in just one quarter is a great result. The explanation for Crocs' growth was strong international growth (+17%), which shows the effectiveness of the company's strategy of bringing in new partnerships (McDonald's and others) and gaining market share through marketing and other initiatives. Meanwhile, HEYDUDE declined by 17%, and the operating margin fell by almost 3 percentage points. The justification for the increase in SG&A was the investments in talent, marketing, digital and retail that were made to support the company's long-term market share gain ambitions. In my opinion, this increase in SG&A is even worse than HEYDUDE's loss of revenue, especially if it recurs in the coming quarters. With this mixed result, there were also pros and cons in the guidance. The expectation for EPS has increased to $12.82 - $12.90 due to the lower tax rate and buybacks, but the expected consolidated revenue is now ~3% and no longer in the 3% to 5% range. What matters to the long-term investor here, and should therefore be monitored closely over the next few quarters, is revenue growth (mainly from the Crocs brand) as well as the sense of sustainability of this level of growth, and SG&A growth, which, if it continues without a counterpart in real gains in market share and revenue, could continue to put pressure on value generation. Even with these risks, punishing Crocs stocks so much seems to me to be an overreaction by the market, leaving the company at a level that is too cheap to ignore. Conservative Model Shows 38.6% Upside for Crocs Stock In the top line, my projection considered something close to 4% for Crocs revenue growth and a 15% decline for HEYDUDE, which resulted in revenues of $1.04 bn for Q3, a decline of -0.5% YoY. My projections were already conservative, and yet HEYDUDE's decline came as a negative surprise. But what's interesting is that Crocs' growth more than offset this decline, making reported revenue equivalent to growth of just over 1.5%. Still, on the positive side, the gross margin was better than I had projected, but it wasn't enough to offset the increase in expenses, which reached -34% of net revenue (while I had projected something closer to -32%). Even so, overall, I didn't think it was necessary to make any major changes to my assumptions. If you compare the last article, after some adjustments, the output is a slightly lower net income (due to greater pressure on the operating margin) and also a lower free cash flow margin. Author (Kênio Fontes), Crocs IR In other words, the conservatism of my DCF model has increased. Another factor that contributed to the fall in the fair price was the increase in the free risk rate, which is now 4.24%. Even though Crocs has been hurt on both ends, its upside has increased significantly, given the excessive drop in its stocks. With these assumptions seen in the image above and other conservative assumptions (such as a terminal CapEx of ~-2.5% of net revenue and a terminal growth of 2.5%), there is a fair price of $151 for Crocs stocks, an upside of 38.6%. In addition to the more conservative assumptions and higher discount rate (11.2%), the implicit IRR shows a higher margin of safety. In the last modeling, the assumptions pointed to an IRR of ~13%, while now it's 16%. Author (Kênio Fontes), Crocs IR The multiples also corroborate this view, since even considering continued drops of -4% for HEYDUDE's revenue and moderate growth for the Crocs brand (~6%) per year, we find a P/E of 8.5x for 2025. In my view, if management manages to stop the bleeding that is happening in the HEYDUDE brand, there is easily room for multiple expansions. Even so, it doesn't seem necessary to the long-term investor. With its high free cash flow in relation to its market cap, Crocs should be able not only to pay off its debt but also to continue with buybacks (the company still has authorization to buy back $549 million in shares) Crocs Doesn’t Need HEYDUDE to Be a Star As I've been following Crocs for some time now, it's become increasingly clear that the acquisition of HEYDUDE has hampered the generation of shareholder value. While the Crocs brand has continued to grow, HEYDUDE has more recently presented figures that have hindered consolidation. Since 2Q23, HEYDUDE's revenue had already shown a slow growth of 3% while Crocs' was double-digit, after which they consequently showed a decline in their revenue. In addition, HEYDUDE's gross margin is worse. In the earnings call, management admitted that HEYDUDE's performance was not good and that it may take longer than expected to “turn the corner”. Even so, some factors were mentioned that support the company's long-term confidence, such as the initiatives to stabilize in the North American market through building relationships, optimizing the inventory position, as well as initiatives to create a brand community focused on female culture and the like. Even though I believe that resuming HEYDUDE's growth and improving operations is entirely possible, it's not necessary to believe that. The current valuation implies that if only the company can stop showing constant declines in revenue, it will be enough to remunerate its shareholders well. In my DCF model, I consider that HEYDUDE's revenue will continue to fall between ~-6% and -3% until the beginning of 2027, and only then will it resume growth close to the mid-single digit. What I mean is that only if the company manages after a few years to turn HEYDUDE into an average company that grows slightly above inflation, while maintaining reasonable growth in Crocs, is it enough to say that the stock is attractive at the current price. As already mentioned, even more important than HEYDUDE's earnings was the large increase in SG&A for the quarter. If these increases are recurrent and the company is unable to return to a margin more in line with previous quarters, there may also be pressure on shareholder value generation in the long term. More important than the fact that Crocs stock is trading at less than 9x its forward earnings (and far from its own average), is that its Free Cash Flow yield (in relation to EV) is close to the highs of the last 10 years.   Koyfin Potential Headwinds for Crocs My rating for Crocs is not a strong buy because there are risks relevant to the thesis. As much as I believe it's something to “don't overthink”, it's something that should be monitored, and it's not that obvious. Crocs stocks are attractive and undervalued, but as long as the company manages to maintain financials similar to what has been seen recently, that seems entirely possible. On the other hand, fashion trends, competition and/or other macroeconomic factors could lead to growth that is even lower than the market expects, creating a downside risk. The main risk, in my opinion, is if, for some reason, the Crocs brand's revenue returns to the pre-pandemic historical average, when revenue was ~$1bn annually. It's even difficult to understand how a sharp drop in revenue could happen, and it would possibly be through a mix of factors such as a deterioration in consumer perception of the brand, fashion trends, loss of important partnerships with licensed brands, a worse macroeconomic and competitive environment and the like. A continuation of the HEYDUDE brand disaster could also end up becoming a risk for the thesis, but this is slightly less harmful since HEYDUDE represents just under 20% of the group's consolidated revenue. Again hitting the valuation key, even excluding the HEYDUDE revenue line entirely and keeping the assumptions for Crocs unchanged, it is possible to find a fair price for Crocs stocks close to $118. The Bottom Line My take is that for the valuation of Crocs to make sense, it would take a much worse quarter than was observed in Q3, which would show not only a drop in HEYDUDE but some structural problem in the thesis that contaminates the growth projections for the medium and long term.  The almost 12% FCF yield makes it highly likely that even with revenue growing at a slower pace, EPS will grow at a faster pace through frequent buybacks and consequently a high shareholder yield, which together justify a buy rating for Crocs","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2480044438"}