Would you believe me if I told you that there was a shoe stock that has produced a monster return of 633% over the past five years? It's hard to believe, but it's true. Crocs (CROX -1.80%), popular for its foam clogs, has been one of the best investments to own in recent years thanks to soaring sales and profits.
However, shares are down 24% (as of May 16) in a little over three weeks and still 36% off their all-time high in November 2021. Despite this negative price action, here's why it's still a leading growth stock to consider buying right now. Let's take a closer look.
A mixed earnings announcement
For the first quarter of 2023 (ended March 31), Crocs increased revenue 33.9% to $884 million, with adjusted diluted earnings per share (EPS) rising 27.3% to come in at $2.61. On the surface, these numbers looked good. In fact, they beat what Wall Street analysts were forecasting. However, the stock is down since the financial announcement on April 27.
That's likely because shareholders weren't pleased with the guidance. The management team's second-quarter guidance, which includes revenue growth of 7.5% (at the midpoint) and adjusted EPS of between $2.83 and $2.98, was lower than analysts were expecting. This could certainly be the main reason the stock has been under pressure in recent weeks. But for the full year of 2023, the leadership team raised revenue guidance slightly, thanks to the business's strong momentum.
Focus on the bigger picture
Despite Crocs appearing to disappoint Wall Street with its near-term guidance, it was still a solid showing. This is even more true when you consider the uncertain economic environment. Crocs is still growing at a robust clip and in a profitable manner during a time when many other businesses are struggling. That could be attractive to some investors who care more about the durability and resilience of a brand rather than any single quarter's results or outlook. "Amidst the more challenging economic landscape, we believe we are well positioned to gain share," CEO Andrew Rees said on the Q1 2023 earnings call.
And speaking of profitability, it's difficult to understate Crocs' success in this regard. In 2022, for example, the business registered a gross margin of 52.3% and an operating margin of 23.9%. This is outstanding for any company, let alone a shoe retailer. Crocs' figures are even better than those of global industry heavyweight Nike. That's something shareholders can get excited about.
Key to this type of success is Crocs' strong brand recognition. Piper Sandler's spring 2023 Taking Stock With Teens survey revealed that Crocs and HeyDude were ranked the sixth and eighth most popular footwear brands, respectively, among teenagers. Innovative design collaborations and a marketing strategy focused on social media and other digital channels help as well.
Looking ahead, management remains optimistic. Crocs plans to continue growing its sandals business while also penetrating Asia. Plus, the addition of HeyDude will benefit the company by diversifying the product portfolio, reducing dependence on the foam clog.
Taking everything into account, it's easy to see how Crocs is well positioned to post solid financial results in the years ahead. And there's even the added potential that the business can exceed management's long-term forecasts should HeyDude pan out better than expected. Crocs is already doing better than the leadership team's guidance in what has been a difficult operating environment. This bodes well for its future potential to surprise investors to the upside.
Even though the stock is up substantially over the past five years, it trades at a price-to-earnings ratio of just 11.6 (as of May 16). That's really remarkable. Usually, stocks that have performed this well trade at nosebleed valuations. It just goes to show that Crocs' fundamentals have improved tremendously over time.
Make no mistake. This company's top-line gains make it a growth stock. But the valuation also makes Crocs a value stock. That's a rare combination these days, so Crocs should be a business on your radar today.
