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Crocs, Inc. (CROX), Wolverine World Wide, Inc. (WWW), Deckers Outdoor Corp (DECK): This Dirt Cheap Shoemaker Has 50% Short Term Upside

Crocs, Inc. (NASDAQ:CROX) is having a terrible year. Its 52 weeks stock price performance is minus 23.6% so far. Furthermore, this stock has also showed some extreme historical volatility. In 2007 the stock price reached almost $70. But just some months later, Crocs, Inc. (NASDAQ:CROX) was trading at its lowest price level, $0.79 per share.

More recently, shares plummeted 20% after the latest earnings call on July 24th. Earnings came in at $0.40 per share, far away from the lower end of guidance ($0.60). Since then, most analysts have downgraded the stock.

Crocs, Inc. (NASDAQ:CROX)

Downgraded, highly volatile, trading at its 7 months bottom level and with apparently decreasing margins, Crocs, Inc. (NASDAQ:CROX) certainly looks like it is in trouble.

So how come it has a 50% upside potential?

Explaining the “poor” quarter

First, we need to start by recognizing that Crocs revenue did increase in the latest quarter: roughly 12.5% on a constant currency basis. Once more, sales in the Asia Pacific region were the main growth driver.

Lower gross margins, on the other hand, originated due to adverse currencies fluctuations and to a $6.1 million one-time charge related to a tax audit in Brazil. Combined with unfavorable tax rates, these external factors stole $0.1 per share in earnings. Crocs, Inc. (NASDAQ:CROX) simply had bad luck this quarter. If these 10 cents in lost earnings per share had not been taken away, the company would have reported $0.5 EPS, which is much closer to its lower guidance.

Crocs revenue in one year is greater than its total market capitalization

Revenue for the first and second quarter came in at $312M and $363 respectively. Assume that the company manages to keep the same $363M level of revenue per quarter for the remaining of the year. In other words, assume pessimistically that there will be no quarterly growth for the remaining part of the year.

According to this scenario, Crocs, Inc. (NASDAQ:CROX) would close $1.4 billion in sales this year, Since revenue last year came in at $1.123B, this implies that Crocs could grow at least 20%+ this year!

In a nutshell, a company that can raise its revenue base 20%+ year over year without any trouble shouldn’t be experiencing a negative 23.6% return rate.

More bullish reasons

  • A well diversified product portfolio: Crocs has shown investors it is not a one-hit wonder stock. Its cash cow, the Clog sandals, still represents 44% of sales according to the latest quarter information, down from 46% last year. However, the fact that overall revenue keeps growing shows the importance of new products.
  • Strong growth in key markets: The Asia Pacific region is the main growth driver.
  • LBO on the way? With a clean balance sheet and more than $290 million in cash and cash equivalents, Crocs, Inc. (NASDAQ:CROX) is a potential LBO candidate. The premium paid by the acquiring institution will benefit shareholders immediately.


For this section, I run a discounted cash flow model under moderate assumptions using Oldschoolvalue financial spreadsheets. I assume a 4% terminal growth rate, 12.8% as the average free cash flow growth rate for the next 10 years (which is actually equal to the average of the past 5 years and 10 years free cash flow growth rates) and a 9% discount rate, which is the standard.

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