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Crocs Is The Ultimate Meme Stock

Dec. 05, 2021 7:42 PM ETCrocs, Inc. (CROX)KO, NKE, TSLA
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Seeking Alpha Analyst Since 2012

I'm a software developer with 13 years of experience. My trading style is to associate trading to measurable data, and to try to see the actions that caused the numbers we see. I'm creating a mobile app to help in investments, you can know more at https://turingdeal.com/


  • Crocs looks like a joke, but it's a joke with a revenue Growth of 72%
  • Tech margins in the industrial sector.
  • Product line kind of company.
Crocs Footwear Open Flagship Store

Cate Gillon/Getty Images News

Crocs look like a Joke, but it isn't

When people think on Crocs think immediately on those pathetic little shoes that are embarrassing ugly, that kind of ugly that you need to be very confident to dare to use it outside.

On the other hand they are defining a category of their own, they don't try to be pleasant to the eye and just to be comfy, so this is probably the cheaper stock of the bundle "stay at home economy". Crocs are at a price per earning of 16 despite growing 72% year over year.

At some point the pandemic will pass, let's hope it ends with the omicron variant that is more contagious and less malicious, but the benefits to brand will be permanent, the relative amount of searches on google for Crocs in june 2021 is 60% more than in june 2019. So it's not just revenue growth, there are really a growing interest in Crocs.


Tech margins in the industrial sector

No matter the amount of branding that carmakers have, and there are some crazy ideas like the one that Tesla will dominate the other carmakers. But most of the industrial sector companies are just a fancy factory, nothing more that.  

A company that recruit people for an assembly line, is a company that needs to repeat a process better than the others, there is not a lot of space for innovation, the old machinery needs to give a return on the investment before gets replaced, and the worker will need to stay just a bit more time redoing the same task to justify the investment in training...these are not in any way super innovative companies.

On the other hand the technology sector is always reinventing itself, evolving at the speed of the electricity, that's why the shoe industry has a net margin of 6% and the software industry has net margin of 20%, and also why the shoe industry has a gross margin of 43% and the software industry has a gross margin of 62%.

Operating and Net Margins

But when it comes to Crocs thing are a bit different, Crocs has a gross margin of 59%, almost the average of software, and a net margin 35%, keep in mind that this include some strange tax rate as the EBIT margin is 29%, so it's lower than the net margin.

Crocs, Inc. (CROX) Company Profile & Key Data

But let's compare this numbers it the super stylish peer: Nike (NKE).

Nike has a one third of the revenue growth, has just 45% of gross margin, looking like average in the poor shoe industry, and the EBIT is bigger than average but stills 16%, little more than half of the massive Crocs margin.

And guess what, even with all this weaker points has a price to sales of 5.82 years, bigger than the 4.89 years of Crocs.


Product line kind of company

Okay Crocs are looking like a good trade already, but now comes what makes it become a good investment.

Most companies need to keep an eye in the competition all the time, if a Tesla gets a little bit worse than a BMW, people will increasingly get aware of the news and will migrate their consumer decisions, as it is a decision about a car, and Tesla and BMW are just brands.

Most of the shoe brands also need to keep one eye in the factory and another in the sport players, burning fields of money to get publicity.

But not all brands are equal, there are different kinds of brands, in the product line kind of company. For example, when you a Cola from Coca-Cola Company it affects directly the revenue and brand of Coca-Cola, but you don't necessarily think about Pepsi. But if you buy a Pepsi Cola from Pepsi, you are still buying a Cola! And is much easier to remember the Coca-Cola, so...the Coca-Cola brand is positively affected even when you choose the competition.

The same thing happens when you buy a Jeep, when you buy a gillette, and when you buy...guess what? Crocs. It's quite unfair, but some brands can't be detached from the entire product line, and when the competition sells, that's just free marketing for them!

Analyst's Disclosure: I/we have a beneficial long position in the shares of CROX either through stock ownership, options, or other derivatives.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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