What’s The Deal With Crocs Stock?

Crocs stock (NASDAQ:CROX) just got hammered – down 30% after a downbeat guidance and news that they’re cutting back orders for the rest of the year. Sure, the stock looks cheap at 7x forward earnings, but there’s a good chance this isn’t the bottom. The fundamentals are deteriorating fast, and history shows CROX tends to get beat up much worse than the market when things get rocky.

The Numbers Don’t Lie

• Growth has hit a wall: Crocs went from cruising at nearly 20% revenue growth over the past few years to a measly 3% last quarter. That’s not a slowdown – that’s practically putting on the brakes.
• Profits are getting crushed: Operating margins have collapsed from a healthy 26% average over four years down to just 6% now. This is not a good sign.
• Earnings keep sliding:
  • Last twelve months: $13.35 per share (down from $15.88 last year)
  • Expected for 2025: $11.32

Yes, It Looks Cheap… But There’s a Catch

Trading at 7x forward adjusted earnings definitely grabs your attention. But here’s the thing – sometimes stocks are cheap for a reason. The market might be pricing in more pain ahead rather than giving you a bargain. Also, see – CROX Valuation Comparison.

What Could Go Wrong From Here?

There are plenty of things that could keep Crocs stock from recovering:

• The Growth Story Is Broken: Going from 20% to 3% growth suggests something fundamental has changed.
• They’re Already Cutting Orders: If management is pulling back on inventory, they’re clearly worried about demand
• It’s Still Just Shoes: Crocs aren’t exactly a necessity – when people tighten their belts, funky foam footwear isn’t top priority
• Fashion Is Fickle: What’s hot today might not be tomorrow, and Crocs has always been somewhat trend-dependent
• Economic Headwinds: When the economy gets shaky, this stock tends to get really shaky

History Lesson: CROX Gets Hammered in Tough Times

Here’s where it gets interesting (and concerning). Crocs doesn’t just fall during market stress – it gets absolutely crushed:

2022 Inflation Crisis

• CROX got demolished: Down 73.9% (from $180.57 to $47.21)
• S&P 500: Down a more reasonable 25.4%
• Recovery? Still waiting. The stock hit $159.68 in June 2024, but never made it back to those 2021 highs. Currently sitting at $74.39.

2020 COVID-19 Panic

• CROX again got hammered: Down 75.2% (from $43.40 to $10.77)
• S&P 500: Down 33.9%
• Recovery? Actually bounced back pretty quickly, hitting pre-COVID levels by September 2020
• Look at – Buy or Sell CROX stock – for more details.

But Wait – We Could Be Totally Wrong

Here’s the thing about calling market bottoms – sometimes you get surprised. There are definitely some reasons why this could actually be where CROX starts to turn around:

• The Valuation Is Really Compelling: At 7x forward adjusted earnings, we’re talking about a valuation that’s really low.  If the company can just stabilize (not even grow dramatically), that multiple could easily see a meaningful growth.
• Management Might Be Getting Ahead of Problems: Those order cuts and conservative guidance could actually be smart moves. Maybe they’re being proactive rather than reactive, setting themselves up for easier comparisons next year.
• Brand Strength Is Still There: Despite all the financial drama, Crocs remains a recognizable global brand with a loyal following. The underlying product demand might just be going through a rough patch rather than a permanent decline.
• Economic Cycles Change: If we’re heading into a period where consumers start feeling better about spending on discretionary items again, Crocs could benefit disproportionately from that shift.
• Operational Leverage Works Both Ways: Just like margins collapsed on the way down, they could snap back quickly if volumes recover. The fixed cost base means even modest revenue improvements could drive big profit gains.

If any combination of these factors plays out, the current price could look pretty silly in 2-3 years. Sometimes the market overshoots on both the upside and downside, and we might be seeing an overshot to the downside right now.

So What’s the Deal?

Look, the low valuation is tempting, but the evidence suggests we might not be done with the selling. The fundamentals are getting worse, not better. Revenue growth has stalled, margins are getting squeezed, and management is already cutting back orders – none of that screams “bottom.”

Plus, history shows that when markets get nervous, CROX tends to fall a lot harder and take longer to recover than everything else. With all the economic uncertainty out there, this pattern could easily repeat.

The Real Talk

While some brave souls might want to catch this falling knife at current levels, the smart money probably waits. There’s a decent chance we see another 30-40% fall from here, potentially pushing the stock below $50. The 7x earnings multiple might look attractive, but it could be the market’s way of saying that the earnings are going to get a lot smaller. Sometimes cheap stocks get cheaper before they get better.

Bottom line: The pain probably isn’t over. If you’re thinking about jumping in, maybe wait to see if things actually start turning around fundamentally before betting on a bounce. See, situations like this lead us to think about risks in investing. There always remains a meaningful risk when investing in a single, or just a handful, of stocks. Consider the Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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