Crocs, Inc. (CROX) is one of the best value investments in the market at the moment. The company is selling for cheap relative to the rest of the market, and is certainly one of the better investments due to the inherent competitive advantage the company has. In addition, the company has done a good job of maintaining high liquidity on the balance sheet and very low debt.
Crocs is a designer and manufacturer of footwear and accessories. The footwear brand of the company is its mainstay. The company's footwear is designed to be fun, comfortable and comes in different colors. It uses a lightweight material that differentiates its product and gives it an edge in the casual footwear industry.
In addition to the footwear products, the company owns the Jibbitz brand. Jibbitz is a unique accessory product-line that is suited for Crocs shoes. The Jibbitz brand is still evolving, and the footwear segment still makes up over 95% of the total revenues of the company.
A competitive advantage with the company is the use of Croslite material. This material increases comfort and functionality. Croslite is manufactured to have a density that makes the footwear feel lightweight. It is water resistant and odor free and thus many footwear styles can be cleaned easily with water. Even though the company has started to use leather and textile fabric in many of the newer styles, it still uses Croslite extensively.
In addition, Croslite, a proprietary resin, is better at absorbing shock than other shoes. Also, it is very good at leveling the load across the bottom of the foot. These advantages allow the company to market its shoes to different customers and increase the product's marketability.
The company sells its footwear and other products around the world. In fact, a majority of its revenue originates abroad. Based on the 2012 annual report; Out of the company's 537 stores, only 170 are located in the US. 12 are located in Canada, 241 in Asia, and 97 in Europe. The Asia segment includes Australia, New Zealand and South Africa. Very clearly, the company has done a fantastic job of setting foot in many big markets across the world. And since the company is relatively small, it has plenty of opportunities to grow.
Even though the American segment generates the maximum revenue from a single continent, the Asian segment is catching up fast. Also, the country already earns more operating income from Asia than from America. Such foresight in identifying potential would bode the company well in future years.
The company enjoys a current ratio of 3.88. The company has hit the ball out of the park with its working capital management. It is very important for smaller companies, with smaller recognition, to manage their cash reserves well, thus lowering the chance of a liquidity problem later.
In addition, the company had $6.6 million of long term debt outstanding. The debt would be serviced at an interest rate of 2.63%. This gives the company a long term debt to equity ratio of .01. Such low leverage would help the company in its global expansion and keep it popular amongst long term investors.
Crocs has seen remarkable growth in the last 10 years. Its revenues have grown from $1.17 million in 2003 to $1.12 billion in 2012. Strangely, Crocs has merely scratched the surface. Due to its global presence, expansion of sales should be easier for the company.
The best thing about the company is its cheap stock. Crocs sells for a PE ratio(ttm) of 10.84. The market, very strangely, has been pessimistic about the prospects of the company. This could be because of the dramatic fall in the stock price of the company during 2007-08. In 2007, the stock of Crocs rose in a bubble like formation to reach around $70, and then collapsed to around $1 in about a year. Since then, the stock has risen to over $30, and is now at $15.79. Although, the company's suffered a net loss in 2008, it did little to hurt the company's underlying business model. If the company continues to grow at the pace of the last few years, it should prove to be a very profitable investment. In the current market, the company is, perhaps, one of the cheapest, and with a relatively good business model.
Crocs is one of the cheapest, yet, relatively sound investments in the market. The stock trades at a much lower PE ratio than do many of its peers. Also, the future earnings of the company show good potential. The balance sheet is well maintained and the business model has an inherent competitive advantage. Value investors should take note.