An Attractively Valued Shoemaker

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

I’ll be the first to admit that I’m not a big fan of Crocs (NASDAQ: CROX) shoes. In fact, I think they’re quite hideous. Luckily for the company that makes these brightly colored fashion statements, many people either disagree with me on this point or simply don’t care. Despite how I feel about the aesthetic value of their products, the company does seem to offer a great deal of fundamental value at the moment, priced at a discount to the industry. Also, looking at the most recent earnings report, the company seems able to continue growing earnings this year.

Stock at a Glance

Crocs makes shoes, apparel and accessories, and markets their products in the Americas, Europe and Asia. The firm is best known for their rubber sandals, which enjoy an almost frantic popularity in some parts of the world. In their own words, the firm looks to “bring comfort, fun and innovation to the world’s feet.” The stock has a market cap of $1.4 billion and around 4,200 employees, which is fairly large, but nowhere near that of competitor Nike (NYSE: NKE), which is nearing a $50 billion market cap. The stock price is down about 23.4% over the last twelve months after hitting highs of around $22.50 in March last year.

Earnings Report

The latest earnings report, released on Thursday, was well received by the market, the stock having popped around 3% at the news. Whereas analysts were expecting break-even results for Q4 2012, the company reported adjusted earnings of 4 cents per share. The company also beat top-line expectations by about $25 million dollars. The company delivered record full-year revenue of $1.12 billion which represents a 12% increase from the year before. According to management, the strong results reflect the company’s ongoing commitment to a multi-channel strategy and the strength of their product line.

Looking forward, management is expecting another year of strong growth, putting the estimate for first-half revenue growth at 13-15%. For the second half of the year, the company expects a stronger performance than in H2 2012. In EPS terms, the company expects Q1 2013 earnings of between $0.32 and $0.34 per share. Analysts are looking for a 2013 full-year EPS of around $1.52, up from $1.40 in 2012.

Valuations and Metrics

At the moment, Crocs looks a bit cheaper than two of its main publicly traded competitors, Nike and Deckers (NASDAQ: DECK), although Deckers is valued almost equally in terms of P/E. TTM P/E stands at about 10x for both Deckers and Crocs, while Nike’s valuation is a lot pricier at around 24.5x. Where Crocs shines in terms of comparative valuation is the 5-year PEG ratio of 0.99, versus Decker’s 1.61 and Nike’s 1.99, which means that Crocs’ expected growth is less expensive than that of the other companies. Moreover, the company has a higher gross margin than these competitors, as well as offering a very respectable 24.8% return on equity.

Bottom Line

For me, Crocs is a typical case of disliking the product, but liking the stock. The company is growing earnings steadily, delivering record revenues for the full-year, and is expecting another year of strong growth in 2013. Moreover, the stock is valued attractively compared to some of its competitors. Having had a bit of a pull-back over the last year, it may be an interesting opportunity at the moment for those looking to get long on Crocs. 

DUJames has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Crocs and Nike. 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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