Over the past three years, Crocs (CROX -0.86%) shares have produced a monster return of 520%. This performance trounces the gains posted by both the S&P 500 and the Nasdaq Composite index. Crocs' return also easily outpaces some of its industry peers, like Nike, Skechers, and VF Corporation. 

But while past returns can certainly draw in some investors looking to ride the momentum to a higher portfolio value, what really matters is what the future looks like, particularly over the long term. In Crocs' case, there's a popular indicator that might indicate this top footwear stock is a screaming buy right now. Let's take a closer look. 

A bargain-basement valuation

Despite Crocs' stock making a meteoric rise in recent years, surprisingly, it still looks undervalued today. As of this writing, shares trade at a price-to-earnings (P/E) multiple of 16.6. For comparison's sake, the S&P 500 is trading at a P/E ratio of 18.6 right now. And Skechers' P/E multiple is 20.9.

A lower valuation is more attractive from an investment perspective because it means there is more upside, all else being equal. Expectations for the company and stock are lower than where some might think they should be. Once the market realizes that shares should be valued higher, multiple expansion occurs, boosting returns.

Reasons to be bullish on Crocs' Stock

A cheap valuation might be warranted if the business in question is of poor quality. This is called a value trap, something investors should try to avoid. Crocs is far from a value trap. And there are three compelling reasons to be bullish on the stock. 

First, throughout Crocs' history, it has been heavily reliant on a single product for its success -- the popular foam clog. While this item accounted for 57% of the overall company's sales during 2022, investors should expect this figure to come down going forward. That's because in February 2022, Crocs completed the purchase of casual footwear brand HeyDude in a deal worth $2.5 billion. HeyDude is projected to do over $1.1 billion in revenue in 2023, and it's registering faster growth than the flagship Crocs brand.

Shareholders should appreciate this move by Crocs because it can help to diversify the company's revenue streams, making it less dependent on the success of the foam clog. Fashion is fickle, and consumer tastes are constantly changing. Crocs should be able to support sustainable demand over longer periods of time with this acquisition and benefit from selling numerous in-demand footwear products under one umbrella.

Moreover, Crocs has been effective with its marketing strategy. The company has been known for doing some farfetched collaborations, like those with Hidden Valley Ranch, Kentucky Fried Chicken, and 7-Eleven. In order to bolster the brand, Crocs has also created designs for Justin Bieber and Balenciaga, to name just two. This keeps the excitement high, while pushing to drive greater interest from customers.

Finally, investors should be bullish on Crocs because of its outstanding profitability and growth potential. In 2022, the business posted a gross margin of 52% and an operating margin of 24%. Both were down compared to 2021, but they still represent better profitability than Nike, for example, which dominates the clothing and footwear categories. Crocs' ability to also generate lots of free cash flow will allow it to easily navigate current macroeconomic headwinds.

According to Wall Street analysts, Crocs' revenue is expected to increase at a compound annual growth rate of 12.2% between 2022 and 2026. And in 2026, the business is forecast to produce $17.57 in diluted earnings per share. This means the current price of roughly $144 is just 8 times that projected bottom-line figure. This all makes it a no-brainer decision to seriously consider buying Crocs stock.