By Brian Bolan
Crocs (CROX) has been a Zacks Rank #5 (Strong Sell) longer than any other stock. That is due to declining estimates and an earnings miss. With earnings right around the corner, will Crocs get going on the right footing?
Two Time Bear
Over the last 4 months, Crocs has been the Bear of the Day two times. This makes three, and since the new format of bear of the Day that is a record that no one really wants to have.
The June 14 Bear of the Day article telegraphed a bad quarter was in the offing. The company tripped up in reporting $0.48 in earnings when Wall Street was looking for $0.64. That means they came in $0.16 below estimates for a 25% negative earnings surprise.
The August 8 Bear of the Day article talked more potential pressure in margins for the footwear maker.
Croc makes and distributes footwear, apparel and accessories. It designs and sells a range of footwear and accessories that utilize its proprietary closed cell-resin, called Croslite. As of December 31, 2012, it operated 121 kiosks located in malls and other high foot traffic areas; 287 retail stores; 129 outlet stores; and 43 Web stores. The company was founded in 1999 and is headquartered in Niwot, Colorado.
Estimates Moving Lower
The company is expected to report earnings again on October 30 after the close. The Zacks Consensus Estimate is calling for earnings of $0.17 on revenue of $292M. Last year, the company reported $296M in revenue and $0.49 in earnings, so investors should be ready for the headline shock of lower revenue and earnings.
The four most recent earnings adjustments have all been lower, with analysts coming in with earnings estimates of $0.15 to $0.19. It should be noted that the high end estimate is coming from the analyst that has been the most accurate of late. Still, the majority of analysts have been lowering their numbers as the quarter ended and just ahead of the earnings report date.
With low expectations, CROX is finding that it has a similar valuation. Many value investors will tell you that just because something looks good on the valuation metrics, doesn't mean it won't get cheaper.
A forward PE of 14x is well below the industry average of 20.6x and a similar discount can be found in price to book and price to sales.
After seeing earnings contract roughly 36% for 2013, analysts are calling for an impressive turnaround in 2014. The implied earnings growth rate of 20% for next year is well ahead of the 15.6% industry average despite expected sales growth of 7.5% vs the 9.4% industry average.
Walk A Mile In Crocs
The fad that was Crocs seems to have come and gone. In some circles it might even be "unpopular" to sport rubber like shoes. The real problem here is that while this may be a shunned brand, the analysts might have taken it a bit too far.
Guidance is calling for revenue between $300M and $310M in revenues, and the Zacks Consensus is full $8M below the bottom end of that range. A beat on the topline is just what the company needs to get things rolling again, but if they step in it again, we could see my shoe size as their stock price.