When shoe maker Crocs, Inc. (NASDAQ:CROX) reported second quarter earnings last week the stock got destroyed, falling 20% on the following day. While revenue grew substantially earnings came in well below analyst estimates, which the company blamed on a colder-than-normal spring season. The stock now trades for around $13.50 per share after approaching $18 earlier this year, and Barron’s believes that there is significant upside going forward. I tend to agree.
Crocs, Inc. (NASDAQ:CROX) had a good quarter plagued by temporary issues. Revenue grew by 9.9% year-over-year with the only weak point being Japan. Wholesale revenue grew by 6.8%, driven by strong growth in the Americas and Asia Pacific regions but tempered by a steep decline in Japan. Direct retail grew by an impressive 17.6% with Europe nearly doubling, and Internet sales rose by about 1%.
Same-store sales growth was 1% worldwide, and CEO John McCarvel said in the earnings release that growth accelerated as the weather improved. Crocs, Inc. (NASDAQ:CROX) has been opening new stores, with 38 added so far this year and 25 more planned before the end of the year. This builds on the current store count of 575.
Bad weather caused the company to cut prices, thus reducing profitability. But if the weakness is truly due to weather then this decline is strictly temporary. Sales of any product that is dependent on weather can be extremely volatile, and one weak quarter means nothing in the grand scheme of things.
Welcome to the bargain bin
With Crocs, Inc. (NASDAQ:CROX) shares plummeting by 20% it appears to both myself and Barron’s that the stock is extremely cheap. The company has quite a bit of cash on the books, with a net cash position of $282 million. This works out to about $3.20 in net cash per share, or 23% of the current market capitalization. Backing this cash out leaves an enterprise value of about $10.30 per share.
In a previous article I pegged owner earnings, which I prefer over net income and free cash flow, at $1.52 per share in 2012. Through the first six months of 2013 owner earnings are $57 million, down from $93 million in the same period last year. This is a big decline, but if the issues are truly temporary then there’s no reason to believe that this kind of decline will persist. The enterprise value is just 6.8 times 2012 owner earnings, so even a steep decline leaves the valuation in bargain territory. If the stock were to trade at 12 times owner earnings plus cash the share price would be about $21.50.