Warren Buffett, who many consider to be the greatest investor ever, fancies companies that have a competitive advantage. This is a valuable attribute that helps to keep rival corporations at bay. And owning these types of businesses can be hugely beneficial to one's portfolio because these stocks can provide solid long-term returns.
With that framework in mind, it's time to turn our attention to Crocs (CROX 2.15%). The popular footwear stock has soared 491% (as of June 16) over the past five years thanks to rising sales and profits. But key to its success is a competitive advantage that investors need to know about.
Continue reading to find out if this powerful trait makes Crocs a screaming buy right now.
NASDAQ: CROX
Key Data Points
Benefiting from a strong brand
The apparel and footwear industries are incredibly competitive, something we can all appreciate as consumers. In the shoe industry, for example, it seems there are an endless number of choices. Businesses compete on the basis of price, quality, and branding in order to capture attention -- and dollars.
Crocs has been extremely successful in a crowded industry thanks to its brand recognition, which is its competitive advantage, in my opinion. Consumers can choose footwear products from any company they want, but Crocs stands out thanks to the popularity of its foam clogs.
According to a recent survey conducted by investment bank Piper Sandler, Crocs was voted the sixth-most-popular footwear brand among the Gen-Z demographic. HeyDude, a maker of casual sneakers that Crocs acquired last year, was No. 8 on that list.
With surging sales, it's easy to believe that Crocs' brand recognition has gotten stronger in recent years. Management has done a wonderful job at marketing its products with some effective partnerships. There have been high-profile collaborations with stars like Justin Bieber and Bad Bunny, as well as Crocs shoes made by luxury fashion house Balenciaga. This keeps the brand in high regard with consumers.
The company's brand strength is also evidenced by its profitability. In 2022, Crocs posted a gross margin of 53.9%, which is outstanding on its own. But this metric also exceeded that of industry heavyweight Nike, which is the leader in apparel and footwear.
There's a flip side to this, too. And that's the fact that Crocs must do whatever it can to maintain this competitive edge. It wasn't too long ago that the business saw sales declines and its brand fall out of favor thanks to excess inventory levels. That's why it's of the utmost importance for the leadership team to be great stewards of the brand for the company's long-term success.
A rare combination of growth and value
Having a strong brand is great in this industry, and it might attract some investors to the stock. But I don't think that tells the full story.
I think Crocs provides shareholders with a truly rare combination of growth and value. Between 2017 and 2021 (to exclude the impact of HeyDude's sales), revenue increased at a compound annual rate of 23%. These gains are remarkable. And they are definitely faster than the overall industry.
By 2027, analysts believe Crocs could generate total sales of $5.9 billion. That equates to a 64% rise from 2022's nearly $3.6 billion. This puts the business squarely in the category of growth companies.
Additionally, value-minded investors have something to appreciate, too. Even though Crocs has been a winning investment, shares are still down 39% from their peak. Plus, they trade at a compelling price-to-earnings ratio of just 11.1 today. Taking all of these positive attributes into account, Crocs looks like a worthy buy.
