Several years ago, the plastic clogs made by Crocs (NASDAQ:) were all over the place, across the country — and making investors rich. Then Crocs crashed — a victim of market saturation and cheap knockoffs.
But after a 15.6% spike in its stock price Thursday, is Crocs on another roll?
Crocs went public in February 2006 and enjoyed a tremendous upward run that lasted until the October 207. During that time, Crocs stock was on a tear that took it from $13.28 to nearly $70 — a compound annual growth rate of 179%.
Alas, that steep rise could not last. And from late October 2007 to late March 2009, the stock plunged to a low of $1.11 — losing 98% of its value. One of the problems was that Crocs were so popular that it attracted competitors who copied them and sold them .
Since then, Crocs stock has enjoyed an even more spectacular rise on a percentage basis. The reason is that in recent years, Crocs has
from sandals to hiking boots. If you had bought it then and held until now, you would have enjoyed a 2,686% return on your investment — up at a nice 300% compound annual rate.
Is it too late for you to get in on this rise? The short answer is yes — it would be very unlikely for Crocs stock to continue going up 300% a year. But a smaller, albeit positive, return may still be possible.
Here are four reasons why it might be:
- Great second-quarter earnings report. Crocs’ . Crocs’ revenue also spiked 29.6% to $295.6 million — 5% more than analysts’ forecasts. Its fastest growth was in Europe up 50% and Asia up 37.5% — while U.S. sales grew 16%. And Crocs raised its third quarter EPS guidance to 40 cents, above analysts’ expectations.
- Cheap stock. Crocs’ price-to-earnings-to-growth (PEG) ratio of 0.8 makes it cheap (a PEG of 1.0 is considered fairly priced). Crocs’ P/E ratio is 26.2 and its earnings per share are expected to grow .
- Growing with solid balance sheet. Crocs has been growing with decent profit margins. Its revenue has climbed at an average rate of 22% over the last five years and its net income has gone up just slightly — representing a 9% net margin. It has no debt and its cash grew at a 22% annual rate from to $146 million (2010).
- Out-earned its capital cost. Crocs is earning more than its cost of capital – and it’s improving. It is producing positive EVA Momentum, which measures the change in “economic value added” (essentially, after-tax operating profit after deducting capital costs) divided by sales. In the first half 2011, Crocs’ EVA momentum was 7%, based on first six months’ 2010 annualized revenue of $790 million, and EVA that improved from $36 million annualizing the first six months of 2010 to $95 million annualizing the first six months of 2011, using a 12% weighted average cost of capital.
If you invest in this stock, you won’t likely earn 300% annual returns — but with its expectations-beating earnings and revenue growth, Crocs stock has plenty of room to rise.
Peter Cohan has no financial interest in the securities mentioned.
