We believe that Crocs’ stock (NASDAQ: CROX) is currently better valued than Nike’s stock (NYSE: NKE). Nike’s current price-to-sales ratio of 4x is higher than levels of 2x for CROX. So does this gap in valuation make sense? We don’t think so, especially if we look at the fundamentals. More specifically, we arrive at our conclusion by looking at historical trends in revenues and operating income for these companies. Our dashboard Better Bet Than NKE: Pay Less To Get More From CROX has more details – parts of which are summarized below.
1. Revenue Growth
Nike’s Revenue grew at an average rate of 7% over the last three years as compared to Crocs’ Revenue growth of 31%. And, if we look at the revenue growth over the last twelve-month period – CROX’s 67% revenue growth is almost three times the 21% growth for NKE’s revenues.
- Crocs is involved in designing, manufacturing, and marketing footwear for men, women, and children under the Crocs brand. The company’s revenue was up 43% year-over-year (y-o-y) to $587 million in Q4 2021. Its direct-to-consumer sales were up 45% y-o-y and wholesale revenue rose 40%. In fact, the retailer’s gross margin was up 770 bps from a year ago to 63.7%, and the adjusted operating margin was 28.6% vs. 21.1% a year ago. Overall, Crocs’ broader results featured an increase of 7 percentage points in gross profit margin, to 62% of sales.
- Nike’s business includes designing, developing, and marketing footwear, apparel, equipment, and accessory products. The company reported revenues of $11.4 billion, up slightly year-over-year (y-o-y), and EPS of 83 cents, up 6% y-o-y. Nike’s revenues were impacted by the ongoing supply chain challenges across the marketplace. In fact, Nike’s inventory levels at the end of the quarter were $6.5 billion, up only 7% y-o-y. These low inventory levels led to falling revenues in Greater China (-20% y-o-y) and the Asia Pacific & Latin America (-8%), while North America (+12%) and Europe, the Middle East, & Africa (+6%) delivered growth during the quarter. It should be noted that the company saw its margin increase 280 basis points to 46% currently – driven by margin expansion in the NIKE Direct business.
2. Operating Income Growth
Crocs’ operating income growth also compares favorably when compared to NKE in the last twelve months and the last three years period. Better revenue growth for the former led to higher operating income.
The Net of It All
Crocs has seen higher growth in revenues and operating income than Nike in the last twelve months and three years. Yet, it has a comparatively lower price-to-sales ratio when compared to NKE. This underperformance in Nike’s revenue and operating income growth compared to Crocs reinforces our conclusion that NKE stock is expensive compared to CROX. We think this gap in valuation will eventually narrow over time to favor the less expensive name.
It is also helpful to see how Nike’s peers stack up. NKE Peers shows how Nike compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
|S&P 500 Return||-4%||-12%||88%|
|Trefis MS Portfolio Return||-4%||-14%||238%|
 Month-to-date and year-to-date as of 3/14/2022
 Cumulative total returns since the end of 2016