When it comes to clothing, many people are prioritizing comfort after the pandemic threw normal routines into disarray. No other business exemplifies this change in consumer preferences more than Crocs (CROX -1.46%).

The maker of popular foam clogs has been on an absolute tear since March 2020. Management expects sales to soar 62% to 65% this year, an outlook that has risen significantly since February when management guided for just 20% to 25% growth in 2021.

As a result, Crocs stock has enjoyed a remarkable run this year, but even after triple-digit gains, it could still be a great bargain today. To find out, let's dive into the bull and bear cases for the company.

Pair of green foam clog shoes.

Image source: Getty Images.

The bull case 

In the third quarter, revenue jumped 73% year over year to $626 million. Digital sales were up 69%, representing just under 37% of the top line, and all three geographies -- the Americas, Asia Pacific, and EMEA (Europe, Middle East, and Africa) -- showcased superb gains with the Americas leading the way.

This company also sports some stellar financial metrics. Its gross margin of 63.9% is on par with a software business, and a net margin of 24.5% means Crocs is extremely profitable. It's no wonder the leadership team plans to end 2021 having repurchased $1 billion of shares during the year. 

By boosting digital sales and focusing on international growth, management expects Crocs to generate $5 billion in annual sales by 2026. At that level of volume, they believe the business will produce at least $1 billion of free cash flow (FCF). Based on the current market capitalization of about $9 billion, investors have the opportunity to purchase the stock for nine times estimated 2026 free cash flow -- that looks like a phenomenal deal. 

At a current forward price-to-earnings (P/E) ratio of 20, Crocs looks undervalued relative to its growth. Its stock trades at a discount to the S&P 500's forward P/E ratio of 22 as well. Shares may be up 140% this year, but the bull case is still clear.

The bear case 

For Crocs, there is one serious risk that stands out, and investors need to consider this question before deciding to buy shares or not: Will the brand fall out of favor with consumers?

It's a legitimate concern, one that's amplified by the fact Crocs suffered a three-year stretch of declining revenue not that long ago.

CROX Revenue (Annual) Chart

Data by YCharts.

Unlike footwear giant Nike, which boasts constant product innovation to drive demand and engage customers, Crocs mainly sells one item -- the clog. On one hand, this is an advantage for the company as its core product has a simple design that is low cost and easy to make. But on the flip side, that also leaves the company especially vulnerable to the fleeting nature of fashion trends. 

With that in mind, management is hoping a push into other categories like sandals will continue to win over consumers long term. 

Is the stock a buy? 

Even after considering the bear case, I think Crocs' intense focus on maintaining its growing brand presence by using effective celebrity collaborations will also keep the business top of mind for its customers. Partnerships with musical artists Diplo and Post Malone sold out quickly, demonstrating how the brand can elevate itself beyond functional clogs. 

And according to Piper Sandler's recent "Taking Stock With Teens" survey, Crocs was highlighted as a brand gaining popularity with the important Gen Z demographic. Attracting a younger customer base is a good situation to be in as this cohort has the potential to be lifelong Crocs buyers.

Investors who have been on the sidelines should take a closer look at this footwear company. There's certainly a lot to like, and if management's long-term outlook proves to be correct, this could be a huge winner over the next five years or more.