Investors who choose to actively manage their portfolios, picking individual businesses in the process, probably want to beat the market over the long term. To achieve this goal, perhaps it's a good idea to look at past winners. Maybe the good times will continue.
Artificial intelligence might be getting all the attention. However, there's one booming footwear stock that has skyrocketed 465% in the past five years (as of May 14). That kind of stellar performance deserves a closer look.
Is this the smartest stock you can buy with $1,000 right now?
Image source: Getty Images.
Rapid growth is a thing of the past
Between fiscal 2019 and fiscal 2024 (ended Dec. 31), Crocs (CROX 0.30%) reported magnificent revenue growth of 233%. This was boosted by the HeyDude acquisition in 2022, but you still get an idea of the rapid expansion that occurred. There's no doubt that this growth drove share price gains.
More recently, the growth has slowed dramatically. Last year, Crocs posted a revenue bump of 3.5%. In the latest quarter (first-quarter 2025 ended March 31), sales dipped slightly on a year-over-year basis. To be fair, though, the flagship Crocs brand remains a bright spot, with revenue up 2.4%. HeyDude is the weak link, as its sales tanked 9.8%.
Management said the results were better than expected. However, the leadership team isn't overlooking the current macro environment, one in which uncertainty appears to be the key theme. Guidance for the full year was pulled.
Nonetheless, it's not hard to be optimistic that the business can weather the storm. One reason why is due to Crocs' incredible profitability. In Q1, the business reported a gross margin of 57.8% and an operating margin of 23.8%. Both of these figures are better than sportswear juggernaut Nike (NYSE: NKE), for instance. Being in solid financial shape should help reduce risk, something bolstered by the executive team's focus on paying down its debt load.
Investors wouldn't be blamed for expecting durable growth. It helps that Crocs has a total addressable market valued in excess of $160 billion, hopefully leading to long-term expansion potential.
Fashion trends are constantly changing
Crocs' financial and stock performance in the past five years speaks for itself. But the company still possesses one major risk, which is that the brand could fall out of favor with consumers. In the apparel and footwear industries, it seems that change is the only constant. Tastes are always shifting. This makes it harder for Crocs to remain relevant over the long term, as the business must always try to stay ahead of the curve.
To its credit, though, it has focused on product innovation, as well as effective marketing and brand campaigns, to drive interest. Investors must watch closely to ensure the brand doesn't fall out of favor in the future.
Selling on the discount rack
Despite the sizable gains, shares of Crocs have been volatile, to say the least. As of this writing, they trade 34% off their peak from November 2021.
Investors might not care, mainly because the valuation remains too hard to ignore. The stock trades at a forward price-to-earnings ratio of 9.4. For comparison's sake, the S&P 500 index (^GSPC 0.70%) trades at a multiple of 21.2, highlighting the massive discount at which the market is offering Crocs stock.
This is for a business that has exhibited rapid sales growth over the long term and that generates significant earnings and free cash flow. The risk of brand obsolescence can't be ignored, but the cheap valuation makes up for it, I think. While it's difficult to say that this is the smartest stock to buy, investing $1,000 in Crocs today could provide a boost to your portfolio over the next five years.
