2022 has been a rough year for investors in the stock market. The S&P 500 is down 21% year to date -- with a market downturn of that magnitude, most public companies, deserving or not, will also see a similar drawdown or worse in their stock price.
With that in mind, here are two beaten-down stocks that look absurdly cheap right now.
1. Crocs
Crocs (CROX -1.12%), the shoemaker known for its proprietary molded clogs, has seen its stock fall more than 60% in 2022 despite record revenue in the first quarter. Crocs' record revenue may also be why its stock has struggled as some of its growth stems from its $2.5 billion acquisition of Hey Dude, a casual footwear brand.
To fund the acquisition, Crocs took out a $2 billion loan, borrowed $50 million under its current facility, and issued 2.85 million shares (about 5% of its shares outstanding) to Hey Dude's founder. As a result, Crocs' long-term debt has exploded from $341 million in the first quarter of 2021 to $2.85 billion in the same period this year.
Despite the rise of Crocs' debt balance, its products are more popular than ever with management guiding for $3.5 billion in revenue for 2022, up over 50%. Even when excluding Hey Dude's estimated full-year contribution of $840 million to $890 million to the top line, management is guiding for the Crocs brand to enjoy over 20% growth.
But Crocs' most eye-opening metrics are its price-to-earnings (P/E) ratio of 4.3 and its free-cash-flow yield (the amount of cash generated from core operations relative to its market cap) of 13%. For comparison, the S&P 500 had a P/E of 20.3 (as of June 17) and a free-cash-flow yield of 2.2% (as of March 11). In that light, the shoe company appears to be the rare growth stock priced like a value stock.
Data by YCharts.
2. Paramount Global
Similar to the S&P 500's performance, Paramount Global's (PARA.A 0.14%) (PARA 3.64%) stock is down about 20% year to date. But there is optimism for the entertainment conglomerate.
First, the company is well diversified in its media and entertainment assets. Its film division Paramount Pictures recently released Top Gun: Maverick, the second-highest-grossing movie in 2022, which has made nearly $900 million worldwide at the box office so far. Paramount Pictures also has rights to major franchises like Mission Impossible, Scream, and Sonic the Hedgehog.
Additionally, the company owns several broadcast and cable channels, including CBS -- the most popular broadcast television network in the United States. Paramount's TV media division's revenue did decline 6% year over year in the first quarter as consumer habits evolve, but the segment still represents 77% of total revenue.
Even as broadcast and cable television revenue slowly declines, Paramount is becoming a major player in streaming with Paramount+, PlutoTV, and Showtime, among other channels. In the latest quarter, Paramount+ added 6.8 million subscribers to its flagship streaming service, reaching about 40 million total. While the viewer base for Paramount+ pales in comparison to Netflix's 221 million global subscribers, the company has plans to expand Paramount+ to the U.K. and Ireland soon, with further expansion into additional markets like South Korea, Germany, and India over the next year.
Today, Paramount's stock trades at a P/E ratio of just four -- the lowest level since March 2020 when the COVID-19 lockdowns began. Additionally, Paramount pays a quarterly dividend with an annualized yield of roughly 3.9%. Notably, the company has raised its quarterly dividend nine times since the Great Recession.
Data by YCharts.
Investors seem to be taking notice of the value Paramount offers, including Warren Buffett's Berkshire Hathaway, which recently acquired a $2.6 billion position in the company, representing about an 11% stake in the media giant. While Berkshire hasn't publicly commented on the investment, there's a lot to like about an entrenched media powerhouse with its shares trading at bargain prices.
