Crocs Is Still a Good Bet After Blackstone's Investment

Crocs (NASDAQ: CROX  ) has had quite a sluggish stock price performance over the past year. Since the beginning of the year, the company has lost around 10% of its value on the stock market. However, the market recently showed optimism about the company, pushing its shares up by 22% after Blackstone Group announced that it would become a major shareholder in Crocs. Is Crocs a better value than peers Deckers Outdoor (NASDAQ: DECK  ) and Nike (NYSE: NKE  ) ?

Asia-Pacific and European businesses drive Crocs' performance
Crocs has become quite famous because of its casual sandals, offering consumers molded footwear with fun, comfort, color, and functionality. Its footwear is lightweight and odor-resistant due to the use of closed cell-resin Croslite, and it is sold in more than 90 countries. Recently, Crocs has faced challenges in the Americas and Japan, but it has enjoyed decent operating performance in Europe and the Asia-Pacific region. The company is positive about turning around its business in Europe and it reported 21% growth in its wholesale business and 65% growth in its retail business in the third quarter of fiscal 2013. In Asia-Pacific, while its same-store sales increased by 9%, Crocs fueled business growth in this region further by opening 15 new retail stores in the recent quarter. . 

Interestingly, the Asia region has grown significantly to become the main profit contributor for the company. In 2012, the Asia business produced more than $140.8 million in operating income for Crocs, which accounted for nearly 57% of the company's overall operating profit. The high growth in the Asia Pacific business has been driven by both core products and new collections that include Boat Line, the A-Leigh, and Huarache.

Blackstone might be interested in Crocs' ongoing European business turnaround and fast-growing Asia-Pacific business. Moreover, Crocs' strong balance sheet could be a great foundation for its future growth. As of September 2013, the company had $690 million in equity, no debt, and $332 million in cash. Blackstone invested in Crocs' convertible preferred shares, which yield a 6% cash dividend and are convertible to common stock at $14.50 per share. Moreover, Blackstone will have two board seats at the company, while Crocs will use the cash investment from Blackstone to help pay for its $350 million in share repurchases.

Low valuation compared to its peers
Crocs is still quite cheap at only 5.5 times its EV/EBITDA, or enterprise value/earnings before interest, taxes, depreciation, and amortization. Its peers, Deckers Outdoor and Nike have much higher valuations. At $84.20 per share, Deckers Outdoor is quite expensive at 16 times its EV/EBITDA, which is similar to Nike's current EBITDA multiple.

Deckers Outdoor, which has previously relied on its UGG brand, has gradually built a more diversified global business and expanded its product line to consumers throughout the world. This year, Deckers Outdoor has introduced different types of boots and casual shoes, including the Caviar Collection and the Classic Collection, and new specialty items. Its fashion boots such as Jardin and Dandelion have also received good interest from consumers, which is why these boots have sold well. 

Nike is the biggest sport-shoes business in the world with a total market capitalization of more than $69.9 billion, and it has consistently returned plenty of cash to its shareholders. In the first six months of fiscal 2014, Nike returned more than $1 billion to its shareholders via both dividends and share buybacks. It is the only stock among these three that pays a decent dividend.

At the current price, Nike yields 1.20% for its shareholders and has a conservative payout ratio at 27%. The company's leadership in sports footwear and apparel as well as compelling moments in world sports that include The Super Bowl, the Winter Olympics, and the World Cup in 2014, could drive Nike's operating performance. 

My Foolish take
Crocs' European business turnaround and fast-growing Asia Pacific business could continue to improve its operating performance. Crocs is still quite cheap at its current valuation, and the Blackstone investment makes investors feel more confident about the company. I personally think that Crocs can deliver a decent return to its shareholders in the next several years. 

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