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Crocs Stock Has Doubled in 2021 -- Is There More Upside Ahead?

By Matt Frankel, Jason Hall, and Rachel Warren – Oct 18, 2021 at 7:11AM

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Despite a strong performance in the rear-view mirror, there are still a lot of reasons to think the footwear company's a good buy.

The share price of footwear maker Crocs (CROX 0.69%) has increased by more than 120% so far in 2021, but could it have even more upside ahead? In this Fool Live video clip, recorded on Oct. 4, Fool.com contributor Rachel Warren discusses why Crocs has performed so well and what she's watching going forward. 

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Rachel Warren: I'm going to talk about Crocs, ticker CROX. The funny, comfy, foamy shoes with the holes in them -- that's what I think of when I think of this company. It's interesting, because I actually remember like years ago, back in '05 or '06 -- and I remember back where I was living, in the Midwest, the Crocs craze had hit fantastically, but it hadn't quite taken hold in Southern California yet. So I remember going to Disneyland with my family and wearing Crocs, and everyone was like, "What are those shoes you're wearing?" Like two weeks later, it was all the rage. So trendsetter as a child.

Jason Hall: You set the standard, Rachel, you did. How about that?

Warren: Apparently I did, yeah. But it's interesting. The other day, last I checked, shares in the company had risen by approximately 121%. You might be thinking, "Wow, this is amazing. How can a footwear company with such a specific type of products be seeing these types of gains?"

The company became a very unexpected pandemic winner. I think, with more and more people looking for comfortable items that they can wear at home, or maybe wear out to the mailbox, or something like that, Crocs came back.

But I will say, the interesting thing with this company is the road has not really been so smooth for them. I think the most recent spikes in Crocs' share price have been significant, mostly in the 2020-2021 period. But there were a lot of years where the company's shares were really flat.

Just a little bit of a background on the company. Crocs was founded in 2002, and the company went public in 2006. It's faced a lot of challenges since it became a publicly traded company in terms of profitability, going through a lot of restructuring changes. But it has made a comeback. Like many businesses, it was hit very hard by the financial crisis. In shoes, there was this major craze initially, and then it died down around that period. The years that followed were very up and down, and the company really struggled to be profitable and deliver earnings growth.

In 2014, I believe the company announced that it was doing this mass restructuring of its business, trying to streamline its operations and stem the financial hemorrhaging that the company was experiencing with store sales declining and really high operating costs. This includes the layoffs of almost a couple 100 workers. It closed a lot of its physical stores. In 2018, it shut down the last of its manufacturing facilities to turn those operations over to third-party facilities. And it went through a major management shake up with it's chief financial officer resigning. Then, in that period, things start to really turn around for Crocs.

In 2018, even though the company said that all these store closures and its business-model changes had cost about $60 million in revenue, it actually grew its revenue by 6% from the previous year. Then in 2019, it reported double-digit revenue growth -- 13%. It was like store closures only reduced our revenue by about $17 million. Again, reducing those losses and at the same time, we are seeing a lot of growth from a wholesale and e-commerce businesses.

Then in 2020, with everyone staying at home looking for comfy wear, it also reported a 13% increase in revenue and its e-commerce revenues -- not surprising with so much online shopping -- jumped about 60%. Then you fast-forward to this most recent quarter, the company's revenue grew by more than 93% year over year, and its operating income tripled year over year. It's definitely come a long way in a short time after going through this prolonged period of either having very small year-over-year revenue increases or none at all and just major losses.

It's interesting with this stock -- when I look at companies as potential buys, I like to find companies with unique competitive advantages and ones that I think have staying power in a long-term investor's portfolio. Again, looking for really quality businesses that you can hold for a long time. I think that Crocs has an advantage in the sense that its shoes are very known to consumers by sight alone. Anyone who sees those shoes, you know it's Crocs. There's no mistaking the way that they look, and I do think investors have been really increasingly excited about the stock over the last few years, as evidenced by its share price increases.

I do think that as the company is continuing to profit of this growth in e-commerce that it can continue that up. I think investors who are interested in socially responsible investing, you might be interested to learn the company's committed to becoming a net-zero-emissions company by 2030. I think that could also make it an attractive investment to some.

I'm still on the fence about whether or not the company has portfolio staying power, which is why I rated it a little bit "in the middle." I do think time will tell. But I do think it's an interesting investment to consider if you believe in this business and are confident with its long-term prospects, I think the fact that it's grown its digital presence so much is great with the trends we're seeing in e-commerce.

Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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