Crocs, Inc. (CROX) Is Going to Outperform

In the long run, Crocs, Inc. (NASDAQ:CROX), the global leader in casual footwear should benefit from strong retail sales, increased consumer confidence, and exposure to international markets, including Africa.

The company’s stock has underperformed the index, but has not declined as much as a major competitor, Deckers Outdoor Corp (NASDAQ:DECK), the maker of UGGs, since June 2012. Outperformance is possible if the company’s management does not commit a major mistake and the economy stays out of another recession (risks for any company).

Fundamentals and Valuation of the Company

For a market capitalization of $1.4 billion and an enterprise value of $1.1 billion, the company’s number of outstanding shares is 91 million. Its balance sheet has no debt and $313 million of cash and short-term investments, or $3.44 per share.

Cash on the basis of Share Price

If, Crocs returns a larger portion of its cash to shareholders then, similar to Apple Inc. (NASDAQ:AAPL), the company will likely unlock its share value. From the above table, DECK’S 4% is similar to $1.70 per share in cash. However, credit should be given to Deckers for repurchasing $184.7 million worth of its own shares with another $115.3 million remaining under its repurchase plan as of September 30, 2012.

A table is being provided below that will compare different metrics of Crocs to those of Deckers and the S&P 500 Index.

Source: SEC filings, Reuters.

The above table represents that in comparison to Deckers and the S&P 500, Crocs has cheaper valuation. After accounting for expected growth, its PEG ratio is less than one. Furthermore, CROX’s balance sheet has more flexibility, and globally its sales are slightly more diversified.

Competitive Position of the Company

Crocs has a well-established competitive position in the U.S. and internationally. Some the competitive positions of Crocs are enumerated below.

Due to strong positions in clogs and developing new brands, Crocs is able to continue growing its sales. Aesthetically, Crocs’ clogs are not very appealing, but they come in attractive colors, are durable, easy to maintain, and easy to slip on and off. In addition, Crocs are suitable for different ages, and is a favorite with both men and women. Deckers’ most popular brand, UGG generates about 75% of the company’s revenue, and sells predominantly to women and teenage girls. UGGs are mostly available at high-end stores such as Nordstrom, Nieman Marcus, and Bloomingdale’s, in addition to Zappos.com. On the other hand, Crocs are available at more stores such as, Famous Footwear, Academy, DSW, Murasaki Sports, and others. Online retailers for Crocs are Zappos.com and Amazon.com.