Legendary investor Warren Buffett's popular investment strategy centers on finding businesses that are trading for less than their true worth. The hope is that over time the market will start to understand and appreciate the company's favorable qualities, and the stock will rise to reflect this upgraded perspective. 

With the S&P 500 and Nasdaq Composite indices up 11% and 26%, respectively, this year as of June 6, investors might be thinking that undervalued stocks are hard to come by right now. But this would be a flawed assumption. Here's one cheap shoe stock that you should buy before everyone else does. 

Looking at the attractive valuation 

Over the past five years, Crocs (CROX 1.16%) shares have produced a fantastic return of 500%, far exceeding the performance of the broader indexes. This is true even though the stock is down 38% from its peak. Having this company in your portfolio would've certainly been a huge win. 

However, what's remarkable is that Crocs shares currently trade at a price-to-earnings (P/E) ratio of just over 11. No, that's not a typo. That multiple is cheaper than the S&P 500, which trades at a P/E ratio of 18.7. This is an attractive valuation for a business that has performed extremely well.

From fiscal 2018 to 2021 (before the HeyDude purchase), revenue more than doubled, boosted by the popularity of foam clogs. Crocs' growth was supercharged, probably as consumers sought out footwear that possessed a combination of comfort and affordability during the worst of the coronavirus pandemic. 

Diluted earnings per share rose more than 1,500% during that same three-year period as well, proving that this is a firmly profitable enterprise. Strong bottom-line gains have certainly been the main ingredient for the stock's impressive run-up. 

Positive attributes of Crocs 

One of the most important characteristics about any consumer-facing company, especially one that sells physical products, is how strong the brand is. While Crocs has fallen out of favor with consumers before, it's evident that it's very strong today. Morning Consult, a survey and research organization, ranked Crocs as the second-best brand based on consumer purchase intent, behind only Meta Platforms.

Last year, Crocs also made Fast Company's Most Innovative Companies list. And the management team wants this to remain the case. That's why I believe the HeyDude acquisition, which Crocs paid $2.5 billion for in December 2021, will prove to be a smart strategic move. 

In the 2023 first quarter, over half of Crocs' overall sales came from a single product: the foam clog. That shows how popular this item has become (try to go one day without seeing someone wearing a pair out in public). But by adding HeyDude into the mix, Crocs is attempting to diversify its revenue mix to rely less on the foam clog to drive the company's results. 

HeyDude's product lineup includes sneakers and sandals, which can expand the total addressable market. HeyDude's revenue jumped faster than the Crocs brand. Over time, it looks like it will be more important to the overall business. 

Moreover, the leadership team wants Crocs' branded sandals to represent a bigger portion of company sales. "This category is an important growth initiative for Crocs, allowing us to expand into the adjacent $30 billion global sandal category," CEO Andrew Rees said on the Q1 2023 earnings call. Again, by pushing products other than the foam clogs, the business can appeal to more customers. And that's a good thing. 

Investors also need to be aware of how superb Crocs' financials are. A gross margin of 53.9% and an operating margin of 26.6% have resulted in the production of a lot of free cash flow. This ensures that Crocs will have no problem paying down its $2.3 billion debt balance, most of which was taken on to purchase HeyDude.  

Investors have a great opportunity now -- while the stock is still down.