Shoemaker Crocs (CROX 0.87%) started selling its foam clogs in the U.S. in 2002. But even after 20 years in business, this brand is still in growth mode. Consider that in 2018, the company generated almost $1.1 billion in revenue. Just five years later, it's on pace for about $3.5 billion for 2022.

With its latest quarterly financial report, Crocs management raised its guidance for investors. The business outlook is bright, which is why I don't believe it's too late to buy the company's stock.

Crocs is navigating the challenging economy

Crocs stock fell almost 75% from late 2021 to June 2022 as investors fretted over inflation, consumer spending, and the stock's valuation. However, the company put some concerns to rest when it reported quarterly financial results in August and again in November. Crocs stock has consequently doubled from the June lows.

When it comes to growth, Crocs is fairly average right now. The company reported financial results for the third quarter of 2022 on Nov. 3, and revenue was up 57% year over year to $985 million, which sounds great -- at first. But much of this growth is attributable to its acquisition of Heydude (more on that momentarily). Revenue for Crocs brand was only up 14.3%.

When looking at recent revenue-growth rates for companies like Skechers, Nike, and Deckers Outdoor Corporation, growth for just the Crocs brand isn't anything extraordinary, as the chart below shows.

CROX Revenue (Quarterly YoY Growth) Chart

CROX Revenue (Quarterly YoY Growth) data by YCharts.

Without its acquisition of Heydude, Crocs' growth would look average for a shoe stock. However, growth at the Heydude brand has been extraordinary.

Heydude generated stand-alone Q3 revenue of $269 million, up a whopping 87% year over year as the brand gains greater recognition. And now that it's part of Crocs, the company can expand Heydude's distribution for larger market-share gains.

Crocs' gross profit margin in Q3 fell from about 64% last year to 55% -- a substantial year-over-year drop. But last-year's gross margin was at an all-time high. This year, the company faced headwinds like foreign-currency exchange, higher shipping and warehouse costs, and the addition of the lower-margin Heydude brand to the company. 

The good news is that several of these profitability headwinds are temporary. For example, currency exchanges should normalize in time, and Heydude's gross margin is poised to improve as it piggybacks on Crocs' logistic network. Moreover, prices for Crocs brand shoes were flat in Q3, despite inflation. Therefore, there's room to raise prices to recover lost margins.

Even if Crocs can't push its gross margin back to its highs, a gross margin of 55% is still toward the high end of its historical range, which is commendable in this inflationary environment.

CROX Gross Profit Margin (Quarterly) Chart

CROX Gross Profit Margin (Quarterly) data by YCharts.

Moreover, it's not like Crocs has a profit problem. The company has still generated $247 million in cash from operations through the first three quarters of 2022, despite cash-flow headwinds from its Heydude acquisition and the aforementioned gross margin reductions. These are strong financial results and explain why the stock has been rewarded in recent months.

Where will Crocs be in a few years?

When Crocs acquired Heydude in December, it believed the Heydude brand could generate over $1 billion in revenue in 2024. Things are going better than planned because Heydude is now expected to generate $1 billion in revenue in 2023.

Long term, management believes Heydude can generate 20% annual revenue growth, which certainly seems reasonable, considering this-year's greater-than-80% growth. Therefore, Heydude could be generating nearly $2 billion in revenue in 2026.

The Crocs brand is expected to generate $5 billion in revenue in 2026, giving the whole company $7 billion in potential total revenue. To give readers some context and perspective for these revenue numbers, even after doubling from June lows, Crocs stock still has a market capitalization of just $5.8 billion.

Crocs' management is also guiding for a 26% operating margin in 2026. For perspective, Q3 operating margin was 26.8%, so this guidance is certainly achievable. If it generates $7 billion in revenue at a 26% margin, then Crocs could have an operating profit of $1.8 billion.

Let's assume all of this happens. If Crocs stock trades at less than 7 times its operating profit -- a more-than-reasonable valuation -- then its market cap would be roughly $11.6 billion. That's a clear double in just four years from where the stock trades today.

That would almost assuredly beat the market over this time span. And it's why I firmly believe it's not too late to buy Crocs stock.