The remote working boom
has impacted a lot of companies. Crocs’ (NASDAQ: CROX)
foam clog shoes – which are very casual and comfortable – have been flying off the shelves since the pandemic made dress shoes an afterthought. In Q3, clog sales increased 31% yoy; their share of Crocs’ total footwear revenues increased from 62% in Q3 2019 to 72% in Q3 2020.
In the first two quarters of 2020, Crocs experienced single-digit yoy revenue decreases. But clog shoe sales helped Crocs return to company-wide revenue growth of 16% yoy for Q3.
Back in September, Crocs shares offered strong value and an attractive entry point. But shares have soared more than 60% higher over the past three months and change, begging the question:
Is the Crocs rally over?
The short answer is no. CROX shares are changing hands at 23.7x forward earnings – still a very attractive valuation when you consider all that the company has going for itself.
Crocs is Winning in E-Commerce
Some companies neglected their e-commerce businesses pre-pandemic. They’ve tried to play catch-up, but it’s not hard to tell who has been taking e-commerce seriously for years.
Crocs has been focused on e-commerce for years. It has paid off. Last quarter, Crocs extended its streak of double-digit e-commerce growth to 14 straight quarters. In Q3 2020, the digital business grew 36%; it made up 38% of Crocs’ Q3 sales, up from 32% in Q3 2019. Those numbers were down from Q2 2020, but that’s because “much of brick-and-mortar was closed for an extended period” in Q2. Brick-and-mortar sales were bound to cannibalize digital sales as stores re-opened. What’s important is that brick-and-mortar sales grew by more than e-commerce sales decreased, leading to the double-digit company-wide growth.
Asia is Improving
In Q1 2020, Crocs’ performance in Asia was abysmal – sales dipped 28.1% yoy. Q2 were a little better, as Asia sales dipped 21% yoy. Asia, of course, was hit very hard in the early stages of the pandemic, so the lower sales were no indictment on Crocs.
In Q3, Asia saw an even bigger improvement; sales were down just 8.8% yoy to $67.7 million. That’s solid progress, but shouldn’t Crocs be returning to growth in Asia? Most Asian countries are reporting lower case numbers than western countries, after all…
Well, it turns out that Chinese tourism – which is still nowhere near pre-pandemic levels – is largely responsible for Asian Crocs sales. On the Q3 earnings call, CEO Andrew Rees noted, “There's a lack of tourists coming to Asia and within Asia. A big part of the Asian business is stimulated by Chinese tourists traveling to all those different markets. So we see that most strongly in our distributor businesses, which are in Southeast Asia. So think Thailand, Philippines, Indonesia, etc., where those distributors are heavily impacted.”
Asian tourism should pick up in 2021. That gives Crocs a great chance of returning to revenue growth in Asia in 2021
Crocs Has a Powerful Brand
Crocs cited a couple of surveys on its Q3 earnings call that lend credence to the idea that the company has a powerful brand.
In the company’s own 2020 brand survey, participants had a higher opinion of Crocs’ brand desirability, brand relevance, and brand consideration. In fact, those three metrics have averaged double-digit growth over the past four years.
The Piper Sandler (NYSE: PIPR) fall 2020, Taking Stock with Teens survey concluded that the Crocs brand remains one of the 10 most preferred footwear brands for American teens.
Crocs’ popularity is no accident. This company knows how to generate positive publicity. Earlier this year, for example, Crocs’ “A Free Pair for Healthcare” program got more than 860,000 pairs of Crocs into the hands of frontline healthcare workers. That’s amazing on its own, but the program also generated more than 29 million new visits to crocs.com.
How Should You Play Crocs?
Crocs offers growth at an attractive price. That said, shares are a bit extended now; they’ve more than 7x’ed off the March lows and trade more than 40% higher than the January/February 2020 highs.
There’s an argument to get into Crocs shares right now – the value is there at current prices – but shares look ready for a pullback.
Keep a close eye on Crocs – short-term weakness should be viewed as a potential buying opportunity.
Featured Article: What is a balanced fund?7 Lithium Stocks That Will Power the Electric Vehicle Boom
Demand for lithium is set to increase exponentially in the next few years. In fact, according to Statista, demand for lithium may very well double to 820,000 tons in that time. Some of that demand will come from companies that are manufacturing the batteries that we use every day. For example, lithium is an essential component of the batteries that power our mobile devices.
But the real growth will come as the United States goes all-in on electric vehicles (EVs). The Biden administration recently announced plans to have the U.S. government’s fleet of over 600,000 vehicles converted to EVs.
And as you’re aware, EV stocks are in a bubble of some sort at the moment. Some of that is due to the increasing number of companies that went public last year. However, as investors are beginning to realize, not all of these companies will be the next Tesla. In fact, some of these companies may never be successful at bringing an EV to market, at least not at the scale that will be required.
The ones that do make it will need lithium and lots of it. To help you sift through the best lithium stocks to buy, we’ve put together this special presentation.
View the "7 Lithium Stocks That Will Power the Electric Vehicle Boom"
Companies Mentioned in This Article
Compare These Stocks
Add These Stocks to My Watchlist