Coming into the pandemic, sandal footwear maker Crocs (NASDAQ:CROX) was flying high. The company’s classic clog was making a huge comeback, thanks to an “ugly” fashion wave in which consumers were ranking comfort and utility over style. Crocs’ had reported eight consecutive quarters with 5% or greater comparable sales growth, and CROX stock surged from $6 in the middle of 2017 to over $40 by early 2020.
Then the novel coronavirus hit.
The global economy shut down. Crocs stores everywhere were closed. Shoppers were told to stay home. Consumer spending dried up. The Crocs growth narrative fell flat, with the company reporting negative revenue growth in the first quarter of 2020.
CROX stock dropped from over $40 in early 2020, all the way back to $8 by late March.
Shares have been since been on a tear, roaring to $25 on the back of optimism regarding store reopenings and a global economic rebound.
This big rally in CROX stock will persist — all the way back to $40 by the end of the year. Why? Mostly because a “return to normal” means a returns to red-hot growth for Crocs, which is arguably the hottest footwear brand in the world today.
Here’s a deeper look.
‘Ugly’ Is in and Crocs Is Winning
Starting in 2018, a fashion wave started to ripple across the globe. Much unlike previous fashion trends, this one made “ugly” styles cool again, by placing value on comfort, price and utility, over style and trendiness.
Naturally, the emergence of this “ugly” fashion wave was a huge positive for Crocs, which is best known for its “ugly” foam clogs that are all utility, all comfort and no style.
Crocs’ comparable sales growth went from consistently negative for several years, to up by more than 10% in 2018.
Sure, retail sales have fallen off a cliff in 2020 amid Covid-19. But the “ugly” fashion trend has not. If anything, it’s gained momentum, again, with Crocs becoming an instant stay-at-home favorite option that has been trending all over social media.
That’s why Crocs was one of the only brands to report positive revenue growth in North America in the first quarter of 2020. It’s also why domestic and international Google search interest related to “Crocs” has surged to all-time highs in March and April 2020. It’s also why Crocs.com web traffic is surging.
And it’s why CROX stock is positioned for a huge second-half rebound once the global economy fully reopens.
CROX Stock Is Set for a Huge Rebound
All the data says that Crocs is arguably the hottest footwear brand in the world right now.
Positive North America revenue growth in Q1. Surging domestic and global search interest. All-time high web traffic. Tons of social media mentions and favorable fashion media coverage.
This huge brand momentum will couple with economic normalization in the back half of 2020 to spark huge revenue and profit numbers for Crocs in the third and fourth quarters.
Specifically, Crocs stores will start reopening over the next few months. Stay-at-home orders will expire. Consumers will turn pent-up demand for Crocs shoes — which they’ve been seeing all over social media as the “it” shoe — into physical purchases of the shoes.
Crocs sales will surge. So will profits. And so will the stock price.
All the way back to $40. Why? Two big reasons.
First, that’s where the stock was before Covid-19. It makes sense that the stock should rebound to those levels once Covid-19 is past us, presumably by the end of 2020.
Second, it’s where the fundamentals say the stock should trade. Based on my modeling, Crocs will net $3 in earnings per share by fiscal 2025 (assuming sustained mid-single-digit revenue growth and slight margin expansion). The medium-term average forward earnings multiple for consumer discretionary stocks is 20.
Based on that multiple and a 10% annual discount, a reasonable 2020 price target for CROX stock is over $40.
The Bottom Line on Crocs
Yes, CROX stock is already up big from its March lows. But this rebound rally is far from over. Instead, because shares fell so far and because the brand has as much momentum today as ever before, Crocs stock is ready to rip back to $40 by the end of the year.
That means shares have another 60%-plus upside from here over the next few months. That’s enough upside to warrant buying here.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.