1 Super Stock Down 24% That Turned $10,000 Into $50,000: Time to Buy the Dip?

There's so much attention going to AI-focused stocks that investors are certainly forgetting about under-the-radar businesses that continue to crush it for shareholders. One consumer favorite that operates as far away from the tech sector as possible is hard to ignore.

In just the past five years, shares of Crocs (CROX 3.69%) have soared 400%. This means that had you invested $10,000 in this footwear stock in May 2019, you'd be sitting on $50,000 today. This gain crushes the overall S&P 500's performance. And that's even with the stock still down about 24% from its all-time high in 2021.

So should you add Crocs to your portfolio? Let's take a closer look at the company.

Latest results

Based on Crocs' recent share-price performance , investors were pleased with the company's first-quarter 2024 financial results (ended March 31). There's a lot of good news to pay attention to as well.

The business reported revenue growth of 6%, which was much higher than what management was forecasting just three months ago. This is a pleasant surprise, given that industry heavyweight Nike saw its sales remain flat on a year-over-year basis in its latest fiscal quarter.

The flagship Crocs brand generates the vast majority of companywide revenue. This segment registered impressive growth of 15%. For a business that primarily sells a single-design shoe, it's really wonderful to see just how much demand there is from consumers for these foam clogs.

Management was pleased with the results enough that they ended up raising bottom-line guidance. For the full fiscal year, executives believe adjusted diluted earnings per share will come in between $12.25 and $12.73. That would translate to a 4% gain compared to last year (at the midpoint).

The financial update Crocs gave investors wasn't all deserving of a standing ovation. In particular, there is trouble brewing at HeyDude, the casual footwear maker that was acquired for $2.5 billion more than two years ago. This segment's revenue dipped 17% in the first quarter.

By revamping the distribution playbook, which includes opening more outlet locations, the hope is that things will stabilize. CFO Anne Mehlman said on the Q1 2024 earnings call that she expects HeyDude sales trends to improve each quarter.

Nonetheless, Crocs rakes in significantly more in sales and profit today than it did five years ago. And that is the most important factor that has propelled the shares higher.

Key factors

Investors looking to scoop up the stock need to spend less time thinking about the most recent financial results, which we will all forget about three months from now. Instead, it's best to focus on the key variables that should drive Crocs' fundamental performance in the long term.

This business certainly deserves credit for remaining relevant in an industry known for making it difficult to find lasting success. Consumer tastes are constantly changing, giving management teams a moving goal post to try and target. Making matters worse, there are virtually no barriers to entry for new industry rivals that want to sell shoes.

But Crocs has developed a strong brand in the sector, which makes up its economic moat. The company's advertising strategy involves celebrity collaborations and unique partnerships that drive greater visibility. For example, Crocs has created shoes with Justin Bieber and fashion house Balenciaga.

Having a powerful brand helps the business generate outsized profits. Crocs' gross margin has averaged a ridiculous 54.9% in the past five years. That's better than other footwear companies like Nike and Skechers, as well as a consumer-focused giant like Apple.

Cheap valuation

Based on the stock's performance in the past five years, you'd assume the market appreciates this business. But there is still much left to be desired. Crocs' valuation remains depressed even after the latest upbeat financial results. Shares trade at a price-to-earnings ratio of 10.6. That's well below the 22.6 multiple of the S&P 500.

I believe this stock deserves a closer look for long-term investors. But there's a caveat: You should only buy shares if you believe in the durability of the brand. In the past few years, Crocs has done a wonderful job in this regard. I believe the low valuation more than makes up for this risk factor.