With a daily gain of 4.44% and a three-month loss of -16.91%, Crocs Inc (CROX, Financial) has recently been the talk of the town. The company's Earnings Per Share (EPS) stands at 10.7. But the question remains, is Crocs (CROX) significantly undervalued? This article delves into a comprehensive valuation analysis to answer this question. Let's begin.
Introducing Crocs Inc (CROX, Financial)
Crocs Inc is a renowned name in the design, development, marketing, distribution, and sale of casual lifestyle footwear accessories for men, women, and children. The company operates across the Americas, Asia Pacific, and EMEA regions. As of September 29, 2023, the stock price of Crocs stands at $89.68, while its fair value (GF Value) is calculated at $149.45. This discrepancy between the stock price and the fair value prompts a deeper exploration into the company's intrinsic value.
Understanding the GF Value
The GF Value is a proprietary evaluation tool that assesses the current intrinsic value of a stock. The GF Value Line provides an overview of the fair trading value of the stock, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is considered overvalued and might yield poor future returns. Conversely, if the price is significantly below the GF Value Line, the stock may be undervalued, indicating potentially higher future returns.
Based on this analysis, Crocs (CROX, Financial) appears to be significantly undervalued. The stock's fair value is derived from historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Given its current price of $89.68 per share, Crocs stock appears to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review the financial strength of a company before deciding to buy its stock. A good starting point for understanding the financial strength of a company is to look at the cash-to-debt ratio and interest coverage. Crocs has a cash-to-debt ratio of 0.07, which is worse than 81.89% of 994 companies in the Manufacturing - Apparel & Accessories industry. GuruFocus ranks the overall financial strength of Crocs at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Crocs has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $3.90 billion and Earnings Per Share (EPS) of $10.7. Its operating margin is 26.69%, which ranks better than 96.31% of 1056 companies in the Manufacturing - Apparel & Accessories industry. Overall, GuruFocus ranks the profitability of Crocs at 8 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Crocs is 49.5%, which ranks better than 94.9% of 1019 companies in the Manufacturing - Apparel & Accessories industry. The 3-year average EBITDA growth rate is 89.5%, which ranks better than 96.53% of 864 companies in the Manufacturing - Apparel & Accessories industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Crocs's ROIC was 20.07, while its WACC came in at 11.72.
Conclusion
In summary, the stock of Crocs (CROX, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 96.53% of 864 companies in the Manufacturing - Apparel & Accessories industry. To learn more about Crocs stock, you can check out its 30-Year Financials here.
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