You might not think much about Crocs (CROX 0.87%) as a foot fashion choice, but the stock itself is quite the looker these days. Shares of the company famous for its resin footwear are kicking off this new trading week by hitting five-year highs on Monday. Returning to sales growth for the first time since 2014, consistently beating Wall Street's profit targets, and radically reshaping its product mix and distribution have transformed Crocs from an investor punch line into one of this year's hottest stocks.  

A year ago, I was singling out Crocs as one of three stocks trading under $10 worth considering. The stock has gone on to more than double over the past year, and it's now trading north of $20 for the first time since late 2012. Crocs is back, and if in the back of your head you're thinking that this can't be right, you might want to revisit what the former trendsetter is doing to win back the hearts and pocketbooks of investors in 2018.

Crocs classic resin shoe in yellow.

Image source: Crocs.

Walk a mile in Crocs' shoes

Crocs is making smart moves. It's emphasizing higher-margin clogs and sandals, a move that finds gross margin rising for the third year in a row. Crocs is also scaling back its retail footprint. It has gone from 558 retail stores at the start of last year to just 398 locations by the end of June. Wholesale distribution and e-commerce are taking big roles in driving Crocs' return to top-line growth this year.

Crocs sees revenue growing in the low single digits this year, something that might not seem like much at first glance, but it's a pretty big deal after three years of top-line declines. Crocs is growing despite scaling back on its retail presence, bailed out by heady growth in its international wholesale business.

The footwear icon drummed up headlines this summer by announcing that it would be closing its last manufacturing plant, but this isn't a surrender. Crocs is simply working the math well enough to know that margins will continue to improve if it outsources the production of its shoes. The bottom line is already showing signs of improvement, and Crocs expects its income from operations to nearly triple to $50 million this year. 

The turnaround is taking Wall Street by surprise. Crocs has not only beaten analyst profit targets in each of the past four quarters, it has beaten Wall Street estimates by a double-digit percentage margin every single time. The market rewards that kind of strong consistency. Crocs gets it.