Friday - Needham has initiated coverage on Crocs , Inc. (NASDAQ:CROX) with a Buy rating and a price target (PT) of $116.00. The firm noted that although Crocs' narrative has its complexities, the stock's recent performance suggests an attractive risk/reward balance moving forward. Crocs shares have seen a significant decline, falling nearly 40% since mid-June, in contrast to the S&P 500's 8% gain during the same period.
The optimism from Needham is partly due to Crocs' continued brand growth internationally, strong free cash flow (FCF), and the expected positive impact of strategic capital allocation. Needham disagrees with the market's implied expectation of earnings declining by approximately 20% next year, finding this valuation to be overly conservative given the company's prospects.
The analyst also highlighted Crocs' investment in talent this year as a positive development. The hiring of Terence Reilly as the new Hey Dude president and the appointment of Steven Smith as Head of Creative Innovation are seen as significant enhancements to the team. Reilly is known for his role in making the Crocs and Stanley brands go viral, while Smith's contributions were key to the success of Adidas (OTC:ADDYY)'s Yeezy sub-brand.
Needham's coverage suggests a strong conviction that Crocs' stock has dropped too sharply and too swiftly, presenting an opportunity for investors. The firm's analysis indicates a compelling risk/reward skew for Crocs as the company heads into 2025.
In other recent news, Crocs, Inc. reported a moderate rise in its third quarter 2024 earnings, with consolidated revenues reaching $1.1 billion, marking a 2% year-over-year increase. The company's direct-to-consumer sales experienced a 5% growth, while the Crocs brand saw an 8% boost in revenue.
Despite these advances, the subsidiary brand, HEYDUDE, encountered a decline in revenue. Adjusted earnings per share also improved, with the company maintaining a positive outlook amidst ongoing challenges.
In light of these developments, Crocs has adjusted its full-year revenue growth guidance for 2024 to approximately 3%. Meanwhile, Loop Capital downgraded Crocs' stock from Buy to Hold and reduced the price target to $110 due to concerns over the current sales trajectory and the challenges faced by HEYDUDE. The firm's decision was also influenced by Crocs' recent forecast revealing expectations for slower sales growth in both of its business segments.
InvestingPro Insights
Recent InvestingPro data aligns with Needham's optimistic outlook on Crocs, Inc. (NASDAQ:CROX). The company's P/E ratio of 7.35 and adjusted P/E ratio of 6.88 for the last twelve months as of Q3 2024 suggest that the stock may be undervalued, supporting Needham's view of an attractive risk/reward balance.
InvestingPro Tips highlight that Crocs is "Trading at a low P/E ratio relative to near-term earnings growth" and "Trading at a low earnings multiple," which corroborates Needham's assessment that the market's expectations for earnings decline may be overly conservative. Additionally, the company's strong financial position is evident from the tip that "Liquid assets exceed short term obligations," potentially enabling the strategic capital allocation mentioned in the analysis.
The recent stock performance noted in the article is reflected in the InvestingPro data, showing a -28.33% 3-month price total return. This aligns with the observation that the "Stock has fared poorly over the last month" and has "taken a big hit over the last six months."
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Crocs, providing a deeper understanding of the company's financial health and market position.
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