Wall Street sees 30% gains in these 2 footwear stocks

Key Points

• Prospects for slowing inflation and stabilizing interest rates have the footwear industry entering the new year in a position of strength.
• Despite an influx of challengers, the Crocs and HEYDUDE brands have remained popular with consumers.
• On Holdings continues to amass a loyal global customer base that loves the feel of CloudTec cushioning and the company’s commitment to the circular economy.

Sneaker and sandal companies may finally be able to put their best foot forward in 2024. 

On the heels of record holiday shopping outlays, prospects for slowing inflation and stabilizing interest rates have the footwear industry entering the new year in a position of strength not seen since before the pandemic. Combined with rising wages in a resilient labor market, 2024 may be shaping up to be a runaway year for sneaker stocks. Why? Higher disposable income could lead to increased spending on discretionary items like clothes and shoes — and much improved earnings for footwear companies.

The upbeat sentiment was echoed at last month’s Footwear Shoe New York Expo (FSNYE) trade show, where footwear brands unveiled their fall and winter 2024 collections. In the words of Footwear Distributor & Retailers of America CEO Matt Priest, “It almost feels like December 2019…and it’s kind of a return to normal.”

Following a tough year for footwear businesses, some much-needed economic relief could translate to strong industry growth. According to Statista, the average American will buy five pairs of shoes this year contributing to what’s forecast to be $91.5 billion in domestic footwear sales. 

With Wall Street in close step with footwear industry trends, upward earnings revisions and stock upgrades have hit the space in recent weeks. Just not in the names you would guess. 

After Nike warned of soft sales and the need for more cost cuts, analysts’ have taken a cautious view of the industry leader. Shortly before Christmas, Nike got a rare downgrade to Sell courtesy of CFRA due to mounting competition. Last week Truist Financial cited a slower growth environment in keeping its rating at Hold. 

Nike’s pains could mean some significant gains for its rivals — especially these two Wall Street favorites.

What is the consensus rating on CROX? 

Crocs, Inc. (NASDAQ: CROX) has earned a Strong Buy rating from Wall Street after reporting above consensus earnings for the 14th straight time in the fiscal third quarter of 2023. Despite an influx of challengers, the Crocs and HEYDUDE brands have remained popular with consumers. Together with effective online marketing, this has enabled the retailer to raise prices, book strong DTC revenue growth, and gain market share. Analysts see more of the same in the quarters ahead.

On Tuesday, Bank of America kicked off the new year by confirming its Buy rating on CROX due to the momentum in the business and efforts to optimize the balance sheet. The analyst there also noted next week’s ICR Conference in Orlando as a possible near-term catalyst for the stock. 

Nine of eleven firms that cover CROX call it a buy and the $124 consensus price target implies 31% upside. (Compare this to the Street’s 16% return forecast for NKE).

Although the winter months are setting in, this shouldn’t put the classic sandal innovator out of mind. A growing lineup of boots and fuzz lined flips should keep Crocs’ sales strong — and shareholders feeling warm and cozy.

What is the return potential for ONON?

Swiss footwear and apparel company On Holding AG NYSE: ONON ran 57% in 2023 by recording impressive financial results in a tough economic environment. Fittingly, the stock’s big advance went stride for stride with the 57% sales growth witnessed through the first nine months of the year. Both DTC and wholesale sales grew 57%, making for a well-balanced revenue model that the market has still yet to fully appreciate. 

And while Nike struggles to gain its footing in Greater China, On Holding is sprinting ahead. Year-to-date sales through September 30th were up 87% in the all-important Asia Pacific region. Along with an expanding gross profit margin and a strengthening balance sheet, there’s a lot to like when it comes to ONON’s fundamentals.

On Holdings continues to amass a loyal global customer base that loves the feel of CloudTec cushioning and the company’s commitment to the circular economy. Signing on popular pro athletes in both track and tennis (like Poland’s Iga Swiatek and America’s Ben Shelton) has built brand awareness and legitimacy. It’s a formula that’s likely to find more success in 2024 as the world opens its eyes to innovative, ‘do-good’ footwear companies that don’t don Nike’s swoosh — or high-end prices. 

Based on the consensus price target, ONON may not run as far in 2024. The current 12-month target of $35.60 suggests ‘only’ 32% upside lies ahead. But with investors starting to rotate to undervalued mid-caps, this footwear disruptor could produce some surprisingly good gains again this year.