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TL;DR: CROX is trading basically at a fire sale price right now, expect it to go to 110 in the most modest case using DCF valuation (using *current* projected multiples with modest assumptions), or 180 in the most bullish view (same multiples, but more bullish assumptions). Even if there is a smidgen of extra growth next earnings, it will VERY quickly rocket up back to previous prices or even beyond. I am long shares.
Good evening/morning/night/etc boys and girls, I have had something on my radar since about march, and I promised someone some DD on this if it hits 78/share by market close and by golly it did just that. Here's the real kicker, this isn't a squeeze, some shit tier biotech stock, or speculative tech ticker, this is something a little more wrinkle brain than the usual plays I see posted here: This is a pure, untapped, value play with a stock I really, really like.
The company I would like to highlight is Crocs, Inc. ($CROX).
You know about crocs, those ugly ass clogs old people and weirdo kids love? Yeah turns out they have a really strong business and that they do more than just clogs, and got a fucking god tier ceo, with steady gains in both revenue and share price from 2017-2021. Turns out everyone gets older and everyone pops out more and more weirdo kids, who would have thunk?
Here's a little illustration of its past performance, because of course that always guarantees future results (they do not.) Instead of trying to read tea leaves to tell the future, I want to tell a story of the past instead. Pay particular attention to the sudden growth from June 2017 to January 2020.
Why am I looking this particular time period, you may be asking? Well, it just so happens to be the exact time period that starts from the date its current CEO, Andrew Rees, has been hired. As you can see, he is an excellent helmsman and turned a slowly dying plastic shoe company into a clog powerhouse, with a focus on growing the brand, and cranking out revenue. Andrew is quite possibly the best man for this job, as you will see, growing the company from a veritable tiny resin bead to a beautiful injection-molded foam tree. His growth-oriented leadership grew the company over 40% annualized in this initial time period.
Once a particular virus started making rounds, did Andrew capitulate and try to snap up any gains and jump ship? Let's zoom out a bit and find out.
For reference, that blue line is the exact same one from the previous chart. To keep a long story short, Andrew discovered the Internet and focused on online sales. He sees the changing tide and sails with it. This is the cause of this parabolic rise post-covid. But all is not roses from here on.
Enter Heydude. The elevator pitch of heydude is that they make very comfortable and stylish loafers/boat shoes that basically are consuming what was previously Sperry's demographic and more. They are growing really fucking fast, but they are still small relative to their competition. They get approached by Andrew and his crew. Andrew, since 2017, has had a laser focus on growing the company as much as he can, and tapping into the demographic that has long forsaken plastic clogs is absolutely in his MO.
They begin working out a deal, and they agree on a price, and it goes through. Crocs purchases Heydude, and sits Rick Blackshaw on the big seat for that company. Rick was responsible for growing other footwear brands in the young demographic like Sperry (ironically) and Keds, this man is literally the BEST person for this job. Small wrinkle, revenue for Heydude was around the 500 million dollar mark at the time of purchase, but the rapid growth that was being projected (around 700m) demanded a premium. That premium ended up working out to a 2.5 BILLION dollar buyout.
People love growth, right? Shouldn't be too bad of a hit to the share price, right?
The market was not too happy to catch wind of this, everyone unanimously says "what the fuck are hey dudes and why did they just spend 2.5 billion dollars on it this is too risky im out." They got downgraded in their corporate bonds to BB- AND THEN B after that. To translate that in plain English, everyone shit their pants and jumped ship after talks began and went through. They had zero faith in the growth of Heydude, writing it off as an already dead fad that will get decimated by rising costs.
As we all know, everything that people think is gonna happen gets priced in. People smarter than me already crunched numbers for the worst case scenario that their growth targets would miss. Perhaps, Mr. Market is saying, Andrew Rees is wrong and that heydude as a brand would not grow?
To be determined, of course. But keep in mind that this happens to be the same Mr. Market that loved Enron, the same Mr. Market that caused the MBS bubble of 07 leading to the 08 housing crisis, the same market that thought fucking tulips were worth big bucks, you understand the idea. I am now asking YOU a question. Do you think Mr. Market is correct? Do you agree with the assumption that the same CEO with a track record of making a fucking diamond out of goddamn EVA foam for the past 7 years happens to be a shitty negotiator? Or do you think that Mr. Market is overlooking something?
In order to help you answer the above questions, here is all the evidence in the contrary.
Here is the google search trends for heydude since the beginning of the year, a little after the merger with CROX. Notice how it has been getting more dense (more interest) the further along time we get.
Here is the insider trade history. Multiple executives dumped a total of OVER 3 FUCKING MILLION DOLLARS of their own cash in CROX. No one spends that much of their own money without knowing something the greater market does not.
I will not bore you with a deep discussion on their multiples, but pay close attention to the PE and EV/EBITDA ratios in particular in comparison to their competitors. The price to book ratio is really fucked up but they did, admittedly, spend a fucking lot of their money recently. Price to cash flow is fucking juiced compared to other brands.
I hope its obvious that CROX is very fucking undervalued at the moment due to an overreaction to the acquisition of Heydude. I'll poach numbers from an online calculator because it is way less time consuming and makes more or less the same assumptions I am making. Doing a DCF analysis based on multiples prices it between 110-180 a share. Here is the caveat. This is the share price with the multiples as they are forecasted TODAY. Should there even be a smidgen more growth than the company projects in ANY of the earnings calls this year, I anticipate up-revisions will send CROX on a fucking stratospheric rise. source for the calculations
Let me spell it out for you. This price target is NOT ACCOUNTING FOR ANY UNEXPECTED GROWTH IN HEYDUDE. I am almost certain that heydude will pop off harder than the market thinks and be a dark horse come earnings, and this target will move WAY up.
Here is the risk, suppose I am wrong, or Andrew Rees has a heart attack and gets replaced with a foam statue of a crocodile or something, and future growth drops to fucking zero. Running the earnings power value model which models pretty much this, you get a price of 44/share. You can actually see that this number is not incredibly far off the ACTUAL PRICE that the company is running at now (78/share as of writing although it bounces off 68/share historically). While I will never say never, it seems highly unlikely that we are going to actually ever sniff this calculated price unless earnings is a fucking disaster and everything I have seen up until now is a figment of my imagination. source
The catalyst, if it isn't clear, is earnings. It could be this upcoming one, or the next one, but as soon as there is any beat, Mr. Market's dumb ass will finally catch on and CROX will switch to Sport Mode.
As for plays, I am long shares at around a 73 dollar cost basis, I have something like 30% of my account in CROX alone (to be fair im running a small account compared to a lot of people here). If I had more to dump in it I would but I maxed out my leverage on it. I like the margin of safety shares provide. ITM LEAPS are also an idea, greater upside potential but I do not want to possibly wait out more than one earnings call for the market to get its head out of its ass and get fucked by theta in the meantime.
Any price below 80-85/share is a decent risk/reward in my opinion. My thesis is null if it dumps below 60 after earnings and you should exit. Options or shares is up to your risk tolerance. Do with this what you will.
EDIT: Removed some of the apey language, spelled out an exit plan