Crocs, Inc. (CROX): An Undervalued Shoe Company

Page 1 of 2

Crocs, Inc. (NASDAQ:CROX) is a company which grew its revenue from just $1 million in 2003 to $847 million by 2007 on the back of an unorthodox footwear product. I’m talking about the original Crocs, Inc. (NASDAQ:CROX) shoe, which looks like this:

This fantastical growth caused the stock to skyrocket, hitting a peak in 2008 of about $72 per share. This was about 36 times 2007 earnings, suggesting that the market believed that strong growth would continue.

But after seeing 138% revenue growth the year before sales decreased in 2008 by 15% and decreased again in 2009, a combination of the financial crisis and the fad-like nature of the product being the culprits. The stock plummeted.



CROX data by YCharts

Since then the company has greatly diversified its product line, adding styles which don’t look as ridiculous as the original, and was able to grow revenue by 12% in 2012.

Gross margin has recovered nearly to the pre-crisis levels and both net income and free cash flow have turned strongly positive. Now that the stock trades at about $15 per share, is Crocs a good value?

Strong balance sheet

At the end of 2012 Crocs had $294 million in cash and only $10 million in debt and capital leases, leaving a net cash position of $284 million. This is about $3.16 in cash per share, which represents a little over 20% of the total market capitalization. This means that the market is valuing all of Crocs, Inc. (NASDAQ:CROX) future profits at about $12 per share.

Crocs, Inc. (NASDAQ:CROX) has been using some of this cash to buy back shares, with 1.9 million shares repurchased since November 2012 and 3.4 million shares remaining on its share repurchase authorization. This most recent burst in buybacks followed a steep drop in the share price, leading me to believe that the company is tactically buying back shares at low prices. Many companies overpay for their own shares, but it looks like Crocs has avoided that trap.

Profitability

EPS became turned positive in 2010 and has almost doubled in the two years since, growing from $0.76 per share to $1.44 per share in 2012. EPS growth grew by 16% in 2012 to $1.44 per share, leading to an adjusted P/E ratio of about 8.33 (after subtracting net cash from the market cap).

Instead of using net income for valuation purposes in many cases I prefer to look at owner earnings. This is similar to free cash flow but removes the effects of fluctuating working capital, which can cause the FCF to be extremely volatile. Owner earnings have grown from $73 million in 2010 to $107 million in 2011 and $137 million in 2012. On a per-share basis the 2012 value is $1.52, slightly higher than EPS and significantly higher than the free cash flow. This puts the adjusted Price/Owner Earnings ratio at about 7.9.

Data from Morningstar

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!