Is Crocs Stock a Buy After a Recent Analyst Upgrade?
Key Points
Crocs has quietly been a big stock winner this year.
The stock is cheap and could have big upside if the company can start to see improved revenue growth.
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One of the quieter stock winners this year has been Crocs (NASDAQ: CROX), the maker of clog shoes. The footwear stock is up nearly 50% on the year and recently received an analyst upgrade from Baird.
Baird analyst Jonathan Komp took his rating of Crocs from "neutral" to "outperform," while raising his price target from $115 to $150. Komp noted that he has more confidence that the Crocs brand is starting to recover in North America, and that its HeyDude brand is making progress.
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The analyst believes that the actions the company took to clean up Croc inventory and cut promotions last year, along with product innovation, are starting to result in improved sales. Meanwhile, he thinks that HeyDude is finally starting to get past the inventory issues that have plagued the brand.
Komp forecasts that Crocs could generate adjusted earnings per share (EPS) of $13.55 this year, with it reaching $14.90 in 2027. However, if sales can accelerate and it buys back more shares, adjusted EPS could climb closer to $17 in 2027.
Image source: Getty Images.
Is the stock a buy?
The Crocs brand has generally held up pretty well over the past few years, even if growth has slowed. Meanwhile, it is seeing some pockets of strength.
International sales jumped 7% last quarter to $421 million, while direct-to-consumer (DTC) revenue rose 13% to $322 million. If it is starting to see better traction in North America, as Komp suggests, that is a big positive for the stock.
Crocs' biggest issue, though, has been its HeyDude brand. The 2022 acquisition has been a disaster almost from the start, as unbeknownst to the company, the brand had flooded the market with product before the deal. Crocs has spent the past several years trying to aggressively clean up inventory and reset the brand. It even hired actress Sydney Sweeney to be the face of the brand.
While it's made progress and seen some success with new products, HeyDude has remained a drag. Last quarter, the brand's revenue sank 12% to $154 million, as wholesale revenue plunged 25% to $83 million. It is looking for HeyDude revenue to drop by 14% to 12% for the fiscal second quarter and be down by 7% to 5% for the year.
Even after the jump in its share price this year, the stock still trades at an attractive valuation. It currently has a forward price-to-earnings (P/E) of just around 9 times this fiscal year's estimates. If Crocs can finally start to see revenue growth pick up a bit, its stock should still have plenty of upside from here.
Should you buy stock in Crocs right now?
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Geoffrey Seiler has positions in Crocs. The Motley Fool recommends Crocs. The Motley Fool has a disclosure policy.
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