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Crocs: A Sustainable Investment.

Opdateret: 30. okt.


Crocs' carbon footprint per shoe is already low, but that doesn't stop them from having very ambitious sustainability goals of achieving net zero emissions by 2030. They have also transitioned to being 100% vegan while selling 85% of their products without packaging. The stock has experienced significant volatility, starting at around $11 per share during the Covid crash, surging to $180 a share in November 2021, plummeting to $47 in June 2022, and currently trading above $120. Is now the time to buy Crocs?


This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.


Since I have attended the workshop with Phil Town, I have decided to change the layout of my analyses a bit. I will do some more calculations and also briefly go through why the company has meaning to me. If you want to read more about how I evaluate a company, please go to "MY STRATEGY" on my website.


For full disclosure, I should mention that at the time of writing this analysis, I do own shares in Crocs, as it represents 3,59% of my copytrading portfolio. If you want to copy my portfolio or viewing the stocks I currently hold, you can find detailed instructions here. I also own Crocs products that I really like. However, my ownership of shares and products in Crocs will not impact this analysis. I will strive to keep it unbiased, as I always do. If you want to purchase shares or fractional shares of Crocs, you can do so through eToro, which provides a user-friendly platform and it is easy to get started.



Crocs describes itself as the global leader in innovative casual footwear for men, women, and children. The company was founded in 2002 and has since sold over 720 million pairs of shoes in more than 90 countries worldwide. Crocs' most famous shoe is the clog, which is made from Croslite, a closed-cell resin. It means that it is not made of either rubber or plastic. The clog is made from only three ingredients, making it easy and inexpensive to produce. Besides clogs, Crocsalso make sandals, other types of shoes, and Jibbitz, which are different charms that can be inserted into the holes of the clogs. Each clog has 13 holes, which means that a pair of clogs can accommodate up to 26 Jibbitz at a time. The Crocs clog has a considerable following among American middle school and high school students who use it as a school shoe.The distinctive look of the Crocs clog makes it highly recognizable, contributing to Crocs' strong brand moat.


Their CEO is Andrew Rees. He joined Crocs in 2014 and became the CEO in 2017. He has over 25 years of experience in the footwear and retail industry, having held various positions in companies such as L.E.K Consulting, Reebok, and Laura Ashley. He is recognized for leading the resurgence of Crocs. To spearhead the resurgence of Crocs, we will employsocial and digital marketing strategies. We will also enhance brand relevance by collaborating with various artists, brands, or designers who appeal to different target audiences. He also decided to simplify the business by closing stores in order to make the company smaller and create a highly profitable and robust growth model. As a leader, he is known for his strong communication skills in effectively conveying his strategy and plans. He believes that in a large organization, it is important to "humanize yourself" and be approachable so that people feel comfortable talking to you. This enables you to maximize people's potential and listen to their valuable and innovative ideas. He also emphasizes that his philosophy is to avoid the constant need to be right and instead focus on reaching a consensus agreement on how to proceed. I believe that the combination of Andres Rees' credentials and modern leadership will drive the future growth of Crocs. I have great faith in the company's management.

I believe that Crocs has a strong brand advantage. I really like the management as well. Now, let us examine the numbers to determine if Crocs meets our criteria for a robust competitive advantage. In case you want an explanation about what the numbers are, you can have a look at "MY STRATEGY" on the website.


The first and most important number we will investigate is the return on investment capital, also known as ROIC. We want to see a 10-year history, and we anticipate that the figures will exceed 10% for each year. Looking at the numbers, it is a tale of two distinct periods. The numbers up to 2018 were disastrous, with ROIC being negative in five out of six years. However, the numbers from 2019 onwards have been great, despite reaching a low point of 15,8% in 2022, the lowest in four years. However, 2022 was a challenging year for most companies. Personally, I believe that CEO Andrew Rees is the reason for the improved ROIC of Crocs once he was able to implement his strategy. I’m encouraged by the numbers that Crocs has delivered under Andrew Rees’ leadership.



The following numbers represent the book value plus the dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the percentage growth year over year. The equity has decreased every year from 2013 until 2019, which is not an encouraging sign. However, Crocs managed to turn things around in 2020. The year 2021 is affected by the acquisition of Hey Dude. The acquisition also impacts the figures in 2022. Hence, we cannot draw any definitive conclusions from the numbers in 2021 and 2022. All in all, I am optimistic and believe that we will see higher numbers in 2023.



Finally, we will investigate the free cash flow. In short, free cash flow refers to the cash that a company generates after covering its operating expenses and capital expenditures. Levered free cash flow is the amount of money a company has remaining after paying all of its financial obligations. I use the margin to provide a clearer understanding. Free cash flow yield refers to the amount of free cash flow per share that a company is projected to generate in relation to its market value per share. Crocs has managed to deliver a positive free cash flow every year since 2016, while significantly increasing it in subsequent years. Crocs have also managed to boost their levered free cash flow margin, which has been above 10% in the last three years. This is very encouraging to see. Additionally, the high free cash flow yield at 6,5% indicates that Crocs is trading at a cheap price. However, we will discuss this further later on.



Another important aspect to consider is the level of debt, and it is crucial to determine whether a business has a manageable debt that can be repaid within a period of 3 years. We do so by dividing the total long-term debt by earnings.Having done the calculations on Crocs, it shows that Crocs can pay off their debt in 4,25 years. It is higher than I would prefer, but since the reason is the acquisition of Hey Dude, I’m not overly concerned. Management has also successfullymanaged to pay down debt, which we will discuss later


Like with all other companies, there are some risks associated with investing in Crocs. One risk is that the brand becomes unfashionable. Right now, Crocs is popular, and there is no indication that this will change. The 2021 Brand Strength Survey revealed that the brand’s relevance, desirability, and consideration among consumers have all increased by double digits. Another indicator that Crocs has a strong brand moat is that in Piper Sandler’s 2023 Spring Survey, Crocs was ratedas the 6th most popular footwear brand among teenagers, while Hey Dude was rated as the 8th most popular footwear brand. Macroeconomics. Macroeconomics could have a short-term impact on Crocs. In their 2022 fourth quarter earnings call, management mentioned that inflationary costs had led to a decrease in gross margins by 180 basis points. Additionally, higher freight prices and inventory handling costs also contributed to another 180 basis points decrease in gross margins.Furthermore, if we experience a prolonged recession, it could have an impact on consumer confidence, which in turn would affect the sales of Crocs products. The high debt. Crocs has a high debt due to the acquisition of Hey Dude. And while management has paid down $500 million worth of debt in 2022, they still expect interest to be higher in 2023 than in 2022 due to the rise in interest rates.Furthermore, the share repurchase program has been put on hold as management prioritizes debt repayment.


There is also a lot of potential for Crocs. They mention four pillars that should drive their future growth. Digital. They believe that embracing digital technology will lead to increased long-term revenue, as it allows them to enhance consumer experiences, personalize consumer journeys, and establish direct connections with consumers.Sandals. Right now, Crocs sells sandals for approximately $300 million annually. However, management expects that sandals have a $30 billion addressable market, meaning there is plenty of room to grow. Management expects that their sandal revenue will more than quadruple by 2026. Asia. They expect 25% of the revenue to come from Asia by 2026. China is the second-largest footwear market in the world, and companies aim to expand their brand presence there by collaborating with brand ambassadors and key opinion leaders. Product Innovation. They will continue to innovate their product to reach new consumers. This could also be achievedthrough acquisitions, as they recently acquired the Hey Dude brand. They will also continue to innovate their products through new collaborations, which has proven successful in the past. Additionally, they will explore new colors, graphics, and personalization options. Finally, I really like their Jibbitz business. Jibbitz is a low-cost and high-margin product that none of their competitors have. In 2022, the sales of Jibbitz grew by 27% year over year and now account for 8% of the total revenue.


All right, we have reviewed the numbers, risks, and potential associated with Crocs, and now it is time for us to calculate a price. To calculate the price, we will need the numbers that I have explained in the "MY STRATEGY" section of the website. I don't want to go through the entire calculation here. I chose to use an EPS of $8,82, which is the figure from 2022. I chose an estimated future EPS growth rate of 15% (which is the highest I use but below the consensus growth from Finbox at 21.2%), an estimated future PE of 30 (which is double the growth rate, as the historical PE for Crocs has been higher), and we already have the minimum acceptable return rate of 15%. Using the formula I described in "MY STRATEGY," we calculate the sticker price (also known as fair value or intrinsic value) to be $264,60. To ensure a margin of safety of 50%, we will divide this price by 2. Therefore, we aim to purchase Crocs at a price of $132.30 (or lower) if we use the Margin of Safety price.


Our second method for calculating a purchase price is the TEN CAP price, which is also explained in "MY STRATEGY".To do so, we need some numbers from their financial statements. Keep in mind that all numbers are in millions. The operating cash flow last year was 603,1. The capital expenditures were 104,2. I tried to look through their annual report to see how much of the capital expenditures were used on maintenance. I couldn't find it, so as a rule of thumb, you can expect 70% of the capital expenditures to be used on maintenance. This means that we will use 72,94 in our further calculations. The Tax Provision was 178,3. We have 61,7 outstanding shares. Hence, the calculation will be as follows: (603,1 - 72,94+ 178,3) / 61,7 x 10 = $114,82 in TEN CAP price.


The last calculation is the PAYBACK TIME. It is also described in "MY STRATEGY". With Crocs' Free Cash Flow Per Share at 8,08 and a growth rate of 15 %, if you want your purchase back in 8 years, the PAYBACK TIME price is $127,55.


Having investigated Crocs, I find the company very interesting. They have a large moat, great management, and some good numbers. I believe they have a strong growth strategy with their various areas of focus, and it is encouraging to see that management believes they can achieve a $5 billion valuation by 2026. At the same time, they maintain a long-termoperating margin of 26%, which is fantastic for a company operating in a sector like Crocs. I also really like the emphasis they put on sustainability, as I believe it is very important for companies to have a clear sustainability policy. Thisbecomes crucial for consumers. Crocs is facing some short-term headwinds due to macroeconomic factors. However, I believe that these issues are short-term. The long-term risk is keeping the brand relevant. Management has done an outstanding job, and surveys show that Crocs is still a popular brand. The brand relevance is something that needs to be continuously monitored if you invest in a company like Crocs, though. I really like Crocs, and it is the third-largestposition in my portfolio. I may add to the position if Crocs falls below the Ten Cap price of as it would trade at a 50% discount to intrinsic value based on all three of my calculations.


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