Crocs, Inc. CROX is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 7.45X. This valuation reflects a discount compared to the industry average of 13.40X and the S&P 500's P/E of 21.90X. The stock is undervalued compared with its industry peers, offering compelling value to investors looking for exposure to the Consumer Discretionary sector. CROX's Value Score of A underscores its appeal as a potential investment.

CROX Valuation Picture

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CROX has gained 2.3% over the past month, outperforming the industry's decline of 7.5%. The stock’s recent momentum was fueled by strong fourth-quarter 2024 results, with revenues and earnings beating the Zacks Consensus Estimate.

CROX Stock's Performance in the Past Month

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The positive performance was driven by the strength of the Crocs brand and impressive international growth. Additionally, management has been implementing improvements to the HEYDUDE brand to support long-term, sustainable growth.

Can CROX’s Growth Strategies Drive Long-Term Success?

Crocs continues to benefit from solid consumer demand across its brand portfolio, supported by higher volumes, effective pricing strategies and lower fulfillment costs. This has resulted in consistent growth over time. Key contributors include the clogs and sandals, with the Classic Clog leading the strong performance in fourth-quarter 2024. The company’s personalization engine Jibbitz business is also performing well, growing 6% on strength in its international markets with robust product wins.

Crocs is on track with its long-term strategy and key initiatives to deliver sustainable growth, announced in September 2021. Its growth strategy is focused on three key initiatives. First, igniting icons across both brands to enhance awareness and relevance for customers. Second, investing strategically in Tier 1 markets to boost market share gains via talent, marketing, digital and retail. Third, diversifying the product range to attract more consumers.

The company’s long-term targets under the plan included generating revenues of more than $5 billion, representing a five-year compounded annual growth rate (CAGR) of more than 17% by 2026. Management expects fourfold times revenue growth in sandals revenue by 2026. The company sees long-term opportunities in Asia, primarily in China.

Management expects revenue growth to witness a CAGR of 25% and to represent 24% of total revenues in 2026. The company aims to generate targets at least 50% of total revenues from digital channels by the end of 2026. Driven by strong revenue growth, the company anticipates improved profitability and cash flows through 2026. It expects the adjusted operating margin to be more than 26% and the annual free cash flow to be more than $1 billion by the end of 2026.

Crocs continues to expand global brand awareness and appeal through strategic collaborations and product innovations. Recent partnerships with Bath & Body Works, Batman, Squishmallow and McDonald's have broadened its reach. The brand is also driving momentum with its Echo and in-motion franchises, alongside upcoming launches like the Echo Wave, Molded Mule and Echo Search, which are affordable yet stylish options catering to budget-conscious consumers.

Setback on the Horizon for CROX

Despite these positives, Crocs faces potential headwinds from upcoming tariff increases. The company’s outlook factors in a 10% tariff on goods imported from China starting Feb. 4 and an additional 25% tariff on imports from Mexico beginning in March.

In 2025, management expects around 15% of enterprise imports to come from China, with Crocs at 10% and HEYDUDE at 27%. Exposure to Mexico is projected to remain under 4%, solely for the Crocs brand. These tariffs are estimated to create an $11 million impact on gross profit, reducing gross margin by approximately 25 basis points.

For the first quarter of 2025, the company expects revenues to dip 3.5% year over year, including an adverse impact of about $19 million from foreign currency. At constant currency, management expects enterprise revenues to be down about 1.5%. Revenues for the Crocs brand is expected between a decline of 1% and flat year over year, driven by mid-single-digit international growth. HEYDUDE brand’s revenues are anticipated to fall in the band of 14-16% due to decreases in wholesale.

For the first quarter, management expects the North America business to be down in the mid-single digits, with the adverse impacts of the Easter shift. Adjusted earnings are projected to be in the bracket of $2.38-$2.52 per share, with the adjusted operating margin likely to be 21.5%, including an adverse impact of 80 bps from foreign currency and pending tariffs.

Final Words on CROX Stock

Crocs continues to demonstrate strong brand momentum, benefiting from solid consumer demand, global expansion and strategic collaborations. The company’s ability to drive growth through its DTC channel, product innovations and international market strength highlights its long-term potential. Additionally, its undervalued valuation compared to industry peers suggests an attractive entry point for investors seeking exposure to the Consumer Discretionary sector.

However, near-term challenges such as rising tariffs, foreign currency headwinds and softness in the HEYDUDE brand's wholesale performance pose risks to revenue growth and profitability. The projected revenue decline for the first quarter of 2025, coupled with macroeconomic uncertainties, warrant a cautious stance. CROX currently carries a Zacks Rank #3 (Hold).

Three Stocks to Consider

We have highlighted three better-ranked stocks, namely, Under Armour UAA, Ralph Lauren Corporation RL and lululemon athletica LULU.

Under Armour is one of the leading designers, marketers, and distributors of authentic athletic footwear, apparel and accessories for a wide variety of sports and fitness activities in the United States and internationally. It has a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for UAA’s fiscal 2024 sales and earnings indicates declines of 9.9% and 44.4%, respectively, from the year-ago reported figures. Under Armour delivered an earnings surprise of 98.6% in the trailing four quarters, on average.

Ralph Lauren designs, markets and distributes lifestyle products in North America, Europe, Asia and internationally. It currently carries a Zacks Rank #2.

RL has a trailing four-quarter earnings surprise of 6.5%, on average. The consensus estimate for Ralph Lauren’s current financial year sales and earnings indicates advancements of 5.8% and 16.5%, respectively, from the prior-year figures.

lululemon is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for lululemon’s current financial-year sales and EPS indicates growth of 9.7% and 12.5%, respectively, from the year-ago corresponding figures. LULU has a trailing four-quarter earnings surprise of 6.7%, on average.

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Ralph Lauren Corporation (RL) : Free Stock Analysis Report

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Crocs, Inc. (CROX) : Free Stock Analysis Report

Under Armour, Inc. (UAA) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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