The market can be a pretty cold place these days. Even seemingly strong quarterly results aren't being rewarded, and we saw that happen late last week when Crocs (CROX 4.38%) and DraftKings (DKNG 2.86%) stepped up with fresh financial results.
Both companies exceeded expectations. They both boosted the full-year guidance they'd initiated earlier this year. It wasn't enough. The footwear maker and online sports gaming specialist saw their stocks swoon after their quarterly reports. It may not seem fair, but it could also be a buying opportunity for both stocks.
Crocs of the matter
Thursday of last week should've been a good day for Crocs investors. The company behind the comfy but polarizing shoes blew past market expectations in the morning. Sales soared 44% -- up 47% on a constant currency basis -- to hit $660.1 million. Adjusted earnings rose 38% to reach $2.05 a share. Both ends of the income statement blew analyst forecasts away. A recent acquisition may have helped pad revenue, but even organic growth was strong at Crocs.
Guidance was also encouraging. Crocs now sees revenue of roughly $3.5 billion, translating to accelerating growth for the balance of the year. We're talking about 52% to 55% in top-line growth for Crocs in 2022. The HEYDUDE acquisition is helping with those jaw-dropping numbers, but organic Crocs growth is still pegged to grow at a 20% clip. It also expects to earn between $10.05 and $10.65 a share this year on an adjusted basis.
It wasn't enough. The stock slumped on Thursday. It doesn't seem to matter that Crocs is now trading for less than six times this year's projected adjusted earnings. No one seems to notice that this will be the fourth year in a row of healthy double-digit sales growth. Investors are kicking off their Crocs and walking out of their positions in bare -- or is that bear -- feet.
Checkmate for DraftKings
DraftKings has been behaving more like an undrafted free agent than a blue chip recruit lately, and its financial update on Friday morning seemed to check off the right boxes. Revenue rose 34% to $417 million for the first quarter, ahead of the $412 million that analysts were targeting. Its loss widened to $1.14 a share on a reported basis or $0.74 on an adjusted basis, but that was better than Wall Street was expecting a week ago.
Friday morning's report also treated investors to a boost in guidance. DraftKings is hiking its forecast for revenue and adjusted EBITDA for all of 2022. The outlook doesn't include the incremental boost related to a recent acquisition. The stock still fell 9% for the day. It's moving lower again on Monday morning.
It doesn't seem fair. DraftKings -- and Crocs, for that matter -- is doing what investors hope their investments will do in terms of exceeding expectations. Stocks that "beat and raise" routinely fare well over time. This also stings because it's not as if these are companies trading at bubbly valuations near all-time highs. Crocs and DraftKings enter this new week trading 67% and 80% below last year's highs, respectively.
They're still growth stocks. They're historically cheap. It's easy to see why the market isn't forgiving of a bad report, but it's a head-scratcher when it doesn't reward a good report. Time could and ideally should correct the imbalance, but it's hard to get a good read on what the market is thinking these days.