This Casual Footwear Company Is Going to Outperform

Abir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In the long run, Crocs (NASDAQ: CROX), the global leader in casual footwear should benefit from strong retail sales, increased consumer confidence, and exposure to international markets, including Africa.

 The company’s stock has underperformed the index, but has not declined as much as a major competitor, Deckers Outdoor Corp (NASDAQ: DECK), the maker of UGGs, since June 2012. Outperformance is possible if the company’s management does not commit a major mistake and the economy stays out of another recession (risks for any company).

Fundamentals and Valuation of the Company

For a market capitalization of $1.4 billion and an enterprise value of $1.1 billion, the company’s number of outstanding shares is 91 million. Its balance sheet has no debt and $313 million of cash and short-term investments, or $3.44 per share.

Cash on the basis of Share Price

If, Crocs returns a larger portion of its cash to shareholders then, similar to Apple, the company will likely unlock its share value. From the above table, DECK’S 4% is similar to $1.70 per share in cash. However, credit should be given to Deckers for repurchasing $184.7 million worth of its own shares with another $115.3 million remaining under its repurchase plan as of September 30, 2012.

A table is being provided below that will compare different metrics of Crocs to those of Deckers and the S&P 500 Index.

Source: SEC filings, Reuters.

The above table represents that in comparison to Deckers and the S&P 500, Crocs has cheaper valuation. After accounting for expected growth, its PEG ratio is less than one. Furthermore, CROX’s balance sheet has more flexibility, and globally its sales are slightly more diversified.

Competitive Position of the Company

Crocs has a well-established competitive position in the U.S. and internationally. Some the competitive positions of Crocs are enumerated below.

Due to strong positions in clogs and developing new brands, Crocs is able to continue growing its sales. Aesthetically, Crocs' clogs are not very appealing, but they come in attractive colors, are durable, easy to maintain, and easy to slip on and off. In addition, Crocs are suitable for different ages, and is a favorite with both men and women. Deckers' most popular brand, UGG generates about 75% of the company’s revenue, and sells predominantly to women and teenage girls. UGGs are mostly available at high-end stores such as Nordstrom, Nieman Marcus, and Bloomingdale's, in addition to Zappos.com. On the other hand, Crocs are available at more stores such as, Famous Footwear, Academy, DSW, Murasaki Sports, and others. Online retailers for Crocs are Zappos.com and Amazon.com.

Crocs has an established foothold in the African continent, which is another source of competitive advantage. The company has 27,000 square feet of wholesale and office facilities in Gordon's Bay, South Africa and manufacturing facility in Padova, Italy, which is near the Mediterranean Sea and offers easy access to Africa by boat. Crocs' most popular clogs are suitable for the climate on the African continent and appeal with their durability and easy maintenance. Crocs should be able to capitalize on its easy access to the African market.

 On a concluding note

 The word Crocs is synonymous with clogs around the world. However, Crocs is still able to grow at a fast pace as the company now offers a year-round collection of over 300 models for men, women, and kids that are sold in nearly 100 countries. Crocs is also licensing its brand to such products as hats, bags, sunglasses, and socks. Compared to S&P 500 and Deckers, Crocs' common stock trades at a discount and at current levels it could easily double in a 52-week period.

 The spring and early summer months are the strongest for Crocs' sales, and in the past few years, the stock has risen during this period. Finally, the company is exploring a number of growth initiatives, which offer upside potential with limited downside. I am pretty bullish that in the near future the company is not going to disappoint its valued investors, as well as customers.

 


abirk has no position in any stocks mentioned. The Motley Fool owns shares of Crocs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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