Increasing $CROX position and new pod with Diligent Dollar

A good weekend to all –

Some bullish CROX news that led to me doubling my position and a new podcast with the excellent Diligent Dollar.

Adding to CROX position, 63%+ upside potential
The biggest news in my portfolio this week was an NYT article on Crocs (CROX) titled Crocs Won 2020. CROX continues to be a cultural sensation that sells out like new iPhones. From the article:

A special-edition pair of Crocs released in collaboration with the Latin pop star Bad Bunny went on sale on Tuesday at noon. Within 16 minutes, they were sold out… Designs the company created with the Grateful Dead and Post Malone — a serial Crocs collaborator — all sold out within an hour. Other recent Crocs collaborations, including one with Kentucky Fried Chicken, have been similarly popular… By late Tuesday afternoon, the lowest price at which the shoes could be purchased on the resale site StockX was $265. Hours earlier, they retailed for $64.99.

I’ve mentioned my bull thesis on my podcast but want to flesh it out in writing – CROX is a COVID-enabled footwear brand that is gaining market share because of a great brand and a casual, comfortable and customizable shoe. What got the company on my radar was its popularity among essential frontline workers that has only been enhanced during COVID. The company leaned into this situation by donating close to 1mm pairs of Crocs to healthcare workers. CROX are in many ways the perfect COVID shoe – they’re comfortable, look cool – especially with little charms called Jibbitz you can put on the shoe – and can be cleaned easily since they’re all plastic and don’t have folds (you can even put them in the dishwasher).

A picture is worth a thousand words here:

Yes, Justin Bieber wears CROX and is rumored to be doing a special promotion soon. Other celebs repping the brand – Adam Sandler, Kim Kardashian, Zooey Deschanel, Post Malone and more.

CROX had an impressive second quarter and recently issued strong guidance for Q3:

“As a brand, we have proven resilient in the face of adversity and are emerging from the COVID-19 crisis with tremendous optimism,” said Andrew Rees, President and Chief Executive Officer. “We have experienced exceptional consumer demand and strong sell throughs. As a result, we expect revenue growth of approximately 10% in the third quarter and anticipate our business continuing to strengthen. We remain focused on setting ourselves up for a successful 2021 and are confident in our ability to deliver sustainable, profitable growth for years to come.”

The stock is up 10% YTD but I think is in the early innings of significant re-rating. Its brand is on fire right now and is seeing surging e-commerce sales. From its Q2 investor deck:

CROX clearly deserves a premium multiple relative to other shoe brands – as the NYT article points out:

Crocs has been gaining ground for the past five years but it has had a banner 2020. At a time when U.S. retail sales of footwear are down 20 percent so far this year when compared to the same period in 2019, sales of Crocs are up 48 percent, according to Matt Powell, an analyst at the NPD Group, a market research firm.

On valuation – going to do a follow-up post here. Some quick numbers – the current valuation is $3.1bn and 2021 expected EPS is $2.21 per the linked Barron’s article. As of Friday’s close, the stock trades at $46, or 21x forward EPS. The $2.21 I believe will prove conservative – CROX did $0.83 in the second quarter, which was in part due to some drastic cost cutting actions due to COVID, but I think some of these cost cuts will stick and margins going forward should benefit from a higher e-commerce shift. That Barron’s article mentions one analysts thinks CROX could do $5 in earnings by 2025 – at a 15x P/E that’s a $75 stock, or 63% upside from here. The 21x forward earnings I don’t think is expensive for a company that’s firing on all cylinders right now.

Compared to some of the tech names I own, what I’m paying for CROX is growth at an extremely reasonable price. CROX is growing the top line over 10% and seeing 67% global e-commerce growth. In 5 years, CROX will not be the company it is today – the brand is strengthening before our eyes and sales are moving to digital fast. Some of these shoes are being sold at Air Jordan prices in the secondary market.

New pod up with Diligent Dollar
I have a new podcast out with one of my favorite financial bloggers, Diligent Dollar. Diligent goes deep on $TRUP, $YELP, $ANGI, $AZO and a ton of others. Highly recommend checking out his blog and listening to this episode on iTunes, Spotify or Overcast. I’m a big fan of how Diligent is super grounded and disciplined in his thinking about free cash flow and competitive positioning over a long time horizon. I learned here that YELP is a free cash flow machine and potentially is more attractive than ANGI. YELP is seeing a ton of growth in its home services division, and may be the better way to play that space (better FCF yield, lower expectations).

Happy trading,


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