Oh, sure, footwear maker Crocs (NASDAQ:CROX) has already handed out the easy money. The stock has skyrocketed over the past 12 months. So should you just sell, take the profits, and buy your father's old Oldsmobile on eBay?
Well, go ahead and celebrate, but hold off on that Olds. I think the stock is still a buy.
Why, you ask? Am I being small-f foolish here?
Let's look back a few months. I began recommending this stock back in February at $22. It's gone through a correction from a recent 52-week high of $47.40 and now sits at $42, adjusting for the 2-for-1 stock split on June 14.
Crocs carries a market capitalization of $3.4 billion, and consensus estimates call for revenues of $707 million and earnings per share of $1.55 this calendar year, followed by 2008 expectations of $920 million and EPS of $1.97. That gives Crocs a price-to-earnings multiple of 21, using the 2008 earnings estimate. I think that's still too cheap for its conservative 30%-plus growth rate.
What's the secret sauce?
The shorts on Crocs have gotten annihilated by blowing it on the business model. They never got it.
Crocs sells its, er, "interesting" footwear in more than 24,000 retail outlets worldwide, and it does not invest in bricks and mortar. Crocs footwear is made from a patented resin material called "croslite." No real estate and a low-cost, patented material translate into those magical words -- "high margins." Gross margins run right around 60%, with operating margins, the ultimate measuring stick, at 25%-27%.
Software-company margins for a shoemaker? Go figure.
Crocs has signed licensing agreements with more than 100 American universities, plus the NHL and the NFL. It added a goofy product line called Jibbitz, which are little button-like characters that kids can put in the holes of their Crocs. Brilliant, yet so simple.
Crocs recently added a more upscale line of boots and shoes, which will soon make their debut with a pricing scheme set at $150 to $300. The casual mainline footwear, meanwhile, sells for between $29.99 and $59.99 -- very affordable. The shoes are higher priced in Europe and Asia, thus adding to those beautiful margins.
I think this stock will exceed analysts' expectations over the next few quarters, with solid growth and strong margins. I'll be looking for EPS of $2.20 for 2008 and $2.85 for 2009. Considering that the company has a habit of exceeding analysts' quarterly expectations as the number of retail outlets keeps rapidly growing, a $65 stock price in the next nine to 12 months would be easily supportable.
Now, please excuse me -- it's time for me to take a walk in my "soft tan" Crocs shoes.
For more on the "interesting" footwear maker, check out:
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Fool contributor Georges Yared can be reached at [email protected] and does not own any shares of Crocs. The Fool has a disclosure policy.
