Crocs, Inc. (CROX), NIKE, Inc. (NKE): Take Advantage of This Overreaction

The average analyst estimate for 2014 EPS is $1.26, putting the forward P/E ratio sans cash at 8.2. Earnings will be much higher if the company recovers from its issues and has a stronger second quarter next year. Barron’s believes that there is at least 30% upside, but given the valuation and the strong revenue growth I think that Crocs will eventually go much higher.

There are none cheaper

In terms of shoe companies Crocs, Inc. (NASDAQ:CROX) looks like the biggest bargain out there. Deckers Outdoor Corp (NASDAQ:DECK), maker of the popular UGG line of footwear, is roughly the same size in terms of revenue as Crocs but nowhere near as cheap. For one, Deckers saw revenue decrease in its second quarter, a stark contrast to Crocs’ robust revenue growth. Revenue growth in 2012 was just 2.7% for Deckers as EPS fell by 32%. The company has guided for full year EPS to increase by 8% this year, which would put the value at about $3.72 per share. With no sizable net cash position Deckers Outdoor Corp (NASDAQ:DECK) trades at about 14.8 times 2013 EPS, far more expensive than Crocs. Of the two Crocs is clearly the better value.

Bigger shoe companies are no better. Behemoth NIKE, Inc. (NYSE:NKE), with $25 billion in annual revenue, trades at 23 times fiscal 2013 earnings, a steep price for a company its size. Analysts are expecting about 11.5% annual earnings growth going forward, but paying 23 times earnings for that level of growth is difficult. Crocs offers the prospect of faster growth at a far lower price, and although Nike certainly has competitive advantages I’d like to see the price come down before considering the stock.

NIKE, Inc. (NYSE:NKE) does pay a dividend, which neither Crocs nor Deckers does, but the yield is a paltry 1.29%.

The bottom line

After falling by 20% Crocs, Inc. (NASDAQ:CROX) is trading at a bargain price. The problems facing the company are most likely temporary, as strong revenue growth and an increasing retail presence will drive the company forward. If the weather is better during the second quarter of next year I would expect analyst estimates for 2014 to be well short of the reported numbers, and the stock could very well be worth $20 per share or more. At $13.50 per share and with a large cash cushion Crocs offers a compelling value opportunity. I don’t own the stock, but I’ll be looking to pick up some shares in the near future if these prices persist.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends NIKE, Inc. (NYSE:NKE). The Motley Fool owns shares of Crocs and Nike. Timothy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Take Advantage of This Overreaction originally appeared on Fool.com and is written by Timothy Green.

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