How Much Farther Can Crocs Go?

It was a good year for Crocs (Nasdaq: CROX), but not quite enough for optimistic analysts. That might not have been so bad by itself, as the foamy footwear maker reported its first billion-dollar revenue year along with $112.8 million in net income. If you're wondering why its stock took a nosedive this morning, blame disappointing guidance for the upcoming quarter, which was below expectations on both top and bottom lines. It doesn't mean Crocs is kaput, but stockholders might have to settle for weaker growth going forward than they've been used to for the past three years.

What's the scoop?
Crocs hit its seasonal low point in the fourth quarter, reporting $203.7 million revenue and a mere $5.6 million in net income. It's still an improvement over the same quarter a year ago, but the drop was a bit steeper than it has been recently:

Sources: Morningstar and Crocs earnings release.

While the trend has been generally positive, don't expect a blowout coming up. First-quarter guidance is aiming for $263 to $268 million, with EPS between $0.24 and $0.26. Analysts expected 30 cents per share, hence the big drop today. The top line, therefore, ought to grow by about 18%, but EPS will be unchanged year over year, a disappointment.

Industry headwinds
Crocs wasn't the only company to get hit with the curse of high expectations. Deckers (Nasdaq: DECK) also had a high bar to get over, and despite doing even better than Crocs in analysts' eyes, its forward guidance disappointed for not being ambitious enough. How's that for a slap in the face?

The footwear industry, with the exception of Skechers (NYSE: SKX), has had continual growth since exiting recession, but Crocs isn't even the top performer revenue-wise:

Deckers Outdoor Corporation Revenues TTM Chart by YCharts.

Despite that distinction, the company's stock has clawed its way to some fantastic gains, far outstripping its industry peers:

Crocs Total Return Price Chart by YCharts.

Even after this growth, Crocs still sports the lowest P/E (at least until it goes on another tear) of this group. Does that make it the best value? Let's see what analysts think:

Source: Yahoo! Finance.

Crocs is the second highest of the group, falling short of Steve Madden's ambitious 23% growth estimates. Footwear titan Nike will keep the industry exciting, though, if they can fill the 16% projected growth for 2012. The bottom line is, Crocs is sporting some of the higher growth estimates in the industry, coupled with a low P/E.

Future plans
Seems like there's still some potential there. Crocs has a lot of opportunity left in Asia and Europe, which both saw 34% sales growth year over year and were the company's fastest-growing sales channels. European sales did slow for the fourth quarter, as might be expected for an area that's entering a recession. Despite that, the company plans to open more locations throughout the EU in 2012. Crocs also intends to open between 25 and 50 Asian stores, a big increase over the 198 currently scattered through the region.

Is there potential? Plenty. Room for growth? Looks like it. Will the stock grow as much as it did exiting the recession? Probably not. That doesn't mean it's not worth holding onto, and it might even be worth a spot in your portfolio after today's overreaction. One important thing to watch will be Crocs' ability to translate its brisk expansion into bigger numbers on the bottom line.

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