Slide
1:
Figure
1: Crocs logo.
Adapted from “The Crocs Logo History, Color, Fonts, and Meaning,” by B.
Sandu, 2023, Design Your Way. https://www.designyourway.net/blog/crocs-logo/
Slide
2: Overview
Figure
2: Hourglass and
data icon. Image from Microsoft Office 16.
Slide
3: Business Context – Crocs, Inc.
In 2002, George Boedecker Jr. and Lyndon Hanson created a
non-slip, waterproof, lightweight, slip-on boating shoe from proprietary
Croslite foam (Crocs, Inc., 2005). Later that year, Boedecker and Hanson
launched the product at a boat show, which was a success (Crocs, Inc., 2005).
Today, Crocs, Inc. is publicly traded (NYSE: CROX) and one of the top ten
global leaders in the non-athletic footwear industry (Crocs, Inc., 2021). Crocs
sells approximately 150 million pairs of shoes annually, earning the company
four billion in revenue for 2023 (Crocs, Inc., 2024c).
In 2022, Crocs, Inc. acquired HEYDUDE to help further its
global expansion (Crocs, Inc., 2021). The company’s brands are sold in over 85
countries and distributed through wholesale and business-to-consumer channels
(Crocs, 2024, May). In 2022, Crocs, Inc. acquired Italian company HEYDUDE to
help further its global expansion (Crocs, 2021). As of September 30th, 2023,
Crocs reported revenue growth in Asia at 37%,
America at 7%, and Europe, the Middle East, Africa, and Latin
America (EMEALA) at 17% (Crocs, Inc., 2024a).
Crocs, Inc. ended 2023 with a record year in revenue at
over four billion, an increase of 11.5% from last year. Crocs’
price-to-earnings ratio is 9.3x, much lower than that of similar companies
within its industry and the industry ratio, so it is a good value. There are two considerable risks associated with CROX.
First, Crocs, Inc. has a high debt-to-equity ratio of 92.5 due to its total
debt of $1.5 billion and shareholder equity of $1.78 billion (Simply Wall St,
2024). Second, there has been significant insider selling within the last
three months. CEO Andrew Rees sold 10k of his shares on June 17th for $160
million, and on August 7th, Douglas Treff, Director at Crocs, Inc.,
sold 10,594 shares (Simply Wall St, 2024).
The stock price is trading significantly lower than
expected at $121.05, 63.7% lower than analysts’ estimated value. Analysts agree
that this stock price will increase an average of 31% (Simply Wall St, 2024).
Crox has an Average Brokerage Ratio (ABR) of 1.36, which indicates a buy
or strong buy. Eleven of the 15 brokerages recommended buy, four to
hold, and none recommended selling) (Zacks Equity Research, 2024). Crocs,
Inc. expects continued revenue growth in 2024 of 3% to 5% overall, Crocs Brand
4% to 6%, and HEYDUDE to maintain or have only a slight increase (Crocs, Inc.,
2024b). Crocs, Inc. is a successful company, and the company and analysts
expect continued growth. However, several things must be considered to
determine if Crocs, Inc. is a good fit for our company. We must consider the
current market, Crocs’ peers, and vital statistics to make an informed
decision.
Slide 4: Business Context- Market,
Industry, and Competition
First, let us consider the strength of the overall stock
market. Many Americans have experienced the effects of economic inflation, and
the media often reports the risk of economic recession. The New York Fed’s
probability model indicates that over the next year, there is over a 60% chance
that the United States will enter a recession (Duggan, 2024). 2024 is also a
presidential election year, seemingly affecting the market in recent history.
Since 1952, the S&P has only experienced 7% gains when a new candidate is
elected versus a 12.2% increase when a president is re-elected compared to
other years when the market has had an average of 10% gains (Duggan,
2024). Many consider the S&P 500 Index The S&P 500
as one the most accurate measures of the U.S. stock market performance, and,
even with the potential market forces, analysts predict that the S&P 500
will experience 11.5% earnings growth and 5.5% revenue growth in 2024 (Kenton,
2024).
Industry
The non-athletic footwear market is worth 305 billion,
comprised of 142 billion for dress and fashion shoes, 125 billion for casual
shoes, 30 billion for sandals, and eight billion for clogs and Crocs, Inc. has
the potential for substantial growth in a portion of that market ($160 billion)
(Crocs, Inc., 2024a). Sketchers (NYSE: SKX), Deckers (NYSE: DECK), and Steve
Madden (NYSE: SHOO) are Crocs, Inc.’s competitors within the industry.
Reported revenue for 2023 was: Sketchers eight billion,
Deckers Outdoors four billion, Crocs four billion, and Steve Madden two billion
(Simply Wall St, 2024). Skechers has a debt-to-equity ratio of 7.3, and Steve
Madden and Deckers have a zero debt ratio. All the companies’ stocks are
undervalued per analysts (63.7% CROX, 39.3% SKX, and 70.5% SHOO), except
Deckers, which is overvalued by 17.1%. The industry price-to-equity ratios are
CROX 9.3x, SKX 15.8x, DECK 27.2x, and SHOO 17.2x. CROX is a good value compared
to the luxury industry at 16.0x; however, based on the earnings growth, some
competitors' stock may earn more, such as SKX, with almost three times the
growth at 14.7%. Earnings growth for DECK is 9.3%, and SHOO is 15.3%, while the
industry is 14.9%
SKX passed all the
risk checks for the risk analysis. SKX’s share price has been stable over the
past three months, and its debt-to-equity ratio is lower than that of CROX, at 7.3%.
However, the ratio has increased from 4.9% to 7.3% over the last five years
(Simply Wall St, 2024). DECK has had significant insider selling over the past
three months; they have a zero debt ratio, and Deck’s earnings (9.3% per year)
are forecast to grow slower than the market (14.9). SHOO risks are unstable
dividend track record and significant insider selling over the past three
months (Simply Wall St, 2024). Return on equity (ROE) indicates a company’s
profitability, efficiency, and how well a company manages the capital that
shareholders have invested in (Furhmann, 2024). All the companies are projected
to have higher ROEs after three years than the 12.9 expected for the industry.
Slide 5: Graphical Representations of Data
Figure 3: Crocs logo with shoes. Adapted
from “The meaning behind the Crocs logo,” by B. Sandu, 2023, Design Your Way.
https://www.designyourway.net/blog/crocs-logo/
In the
following slides, we will analyze the highest and lowest stock prices, adjusted
closing prices, stock volume, and descriptive statistics that can provide more
insight into Crocs, Inc.
Slide 6: Scatterplot of Highest Stock Prices
Figure 4: Scatterplot of the Highest Stock Prices (July 2019 to July 2024). Adapted from data retrieved from Yahoo Finance. https://finance.yahoo.com/quote/CROX/
The moving average (in red) lets us see
trends more quickly. Since 2019, prices have continued to rise, peaking on
November 15th, 2021, steadily declining to $48.88 in June of 2022,
then peaking again in March of 2023, declining slowly again to approximately
$80 in November of 2023, and then rising to another peak of $165.32 on June 20th,
2024. Analysts and Croc, Inc. deemed the shoe’s popularity due to the pandemic
(Holman, 2023). It is important to note that the data contained 20 outliers,
all found in November 2021 and December 1, 2021, including the highest peak
price. Analysts also projected the pricing to return to its regular, lower
pricing after the pandemic (Holman, 2023). While the highest stock price has
not exceeded $170 since November of 2021, the data shows a moderate correlation
between the price increases over time. However, there has not been a steady
incline; the outliers, peaks, and valleys indicate this stock is moderately
volatile.
Slide 7: Scatterplot of the Lowest Stock Prices (July
2019 to July 2024)
Figure 5: Scatterplot of the Lowest Stock Prices (July
2019 to July 2024). Adapted
from data retrieved from Yahoo Finance. https://finance.yahoo.com/quote/CROX/
Figure 5: The Scatterplot of the Lowest Stock Prices chart (in blue) was
created in Excel with data compiled from Yahoo Finance from 7/30/2023 to 7/30/2024.
Like the previous scatterplots, the graph shows the relationship between the
lowest stock prices by date and contains three prominent peaks and three
valleys. Once again, a moving average was added to highlight the data trend (in
red). The lowest price was $8.40 on 3/18/2020, and the highest was on
11/12/2021 at $177.67. Like Figure 2, the first prominent peak occurs in
November 2021, dips in July 2022, peaks
in April 2023, declines in November 2023, and peaks in June 2024. Using the
CORREL function in Excel, the correlation coefficient for this scatterplot is
also .70, or 0.73, with the outliers removed, indicating a moderately positive linear
correlation. However, like the previous scatterplot graphs, the data indicate
price volatility.
Slide 8: Histogram of Adjusted Closing Stock Prices (July 2019 to
July 2024)
Figure 6: Histogram of Adjusted Closing Stock Prices
(July 2019 to July 2024). Adapted
from data retrieved from Yahoo Finance. https://finance.yahoo.com/quote/CROX/
A histogram is a graphical representation of a variable's frequency of
occurrence or probability distribution (Capella, 2024). A histogram can
indicate relationships, patterns, and distributions of values, such as skews
that can indicate volatility. The Adjusted Closing Stock Prices bins range from
0 to 190 on the x-axis, and the number of occurrences is marked on the y-axis.
Figure 6 is moderately symmetrical, with prices primarily spread from 20 to 180
with clusters around 40, 80, 110, and 130. The mean is 85.86, and the median is
84.27, which suggests a slight positive skew to the right. The numerous rises
and dips in the data indicate volatility.
Slide 9: Histogram of Stock Trade Volume (July 2019 to July 2024)
Figure 7: Histogram of Stock Trade Volume (July 2019 to July 2024). Adapted from data retrieved from Yahoo Finance. https://finance.yahoo.com/quote/CROX/
The x-axis for Figure 7 is the ranges of the stock trade volume, and the
y-axis is the number of occurrences. The histogram was created in Excel
following the same steps using the stock trade volume data from July 30, 2019,
to July 30, 2024. The histogram shows a
positive skew, with 85% of the data falling between one and two billion.
Forty-one percent (513) occur at 1.5 billion of the trade volume. The mean is
$1,509,533.34, and the median is $1,285,300.00, highlighting the skew to the
right and indicating unequal distribution. The standard deviation is 1033434.268,
suggesting the data has a significant variance and spread. Two deviations from
the mean are 3576401.872, so the 36 data points four billion and more
significant are outliers, which further support that the trade volume is an
unequal distribution.
Slide 10: Descriptive Statistics
Figure 8: Mean,
Median, Mode, and Standard Deviation of the Adjusted Daily Closing Stock Price.
Adapted from data retrieved from Yahoo Finance. https://finance.yahoo.com/quote/CROX/
Mean, median, and mode can help determine a
data set's central tendency. Standard deviation can help explain a data set's
characteristics, such as variation and dispersion from the mean. Mean is the
average value of a data set. The median is the center of a data set. Mode is
the value that occurs the most often within a data set, and standard deviation
measures the dispersion of the values from the mean (Capella, 2024). Excel
formulas were used to calculate all four values for the adjusted closing stock
price and volume from July 30, 2019, to July 30, 2024.
The mean for the Adjusted Closing Stock is $85.86, which is the average
adjusted daily stock price for the last five years. The average is
approximately 30% lower than the current stock value of $121.05. The median is
84.27, close to the mean, indicating only a slight skew to the right but an overall
equal dispersion and no outliers. The standard deviation is 40.58, indicating
that the data spread is extensive, with 95% of the data falling within $4.7 and
$167.02.
Figure 9: Mean,
Median, Mode, and Standard Deviation of the Stock Trade Volume. Adapted from
data retrieved from Yahoo Finance. https://finance.yahoo.com/quote/CROX/
The mean daily traded stock volume from July 30, 2019, to July 30, 2024,
is 1509533.34, and the median is 1285300, indicating that the data is skewed to
the right and multiple outliers exist. If
the data followed a standard bell curve, the mean would suggest a high average
of stock volume sold daily. However, the standard deviation also indicates that
the spread is significant, and the presence of outliers indicates that this
data is not equally distributed.
Slide 11: Conclusion
The Scatterplot of the Highest Stock Prices (Figure 4) and Scatterplot of the Lowest Stock Prices
(Figure 5) indicate a moderately positive linear relationship wherein the
highest and lowest values for the stock prices have gradually increased over
the year. The correlation is only moderate at 0.70 because the graph contains
significant peaks and declines several times surrounding the trendlines. High
volatility is often associated with significant peaks and dips where the prices
change dramatically over a short period (Hayes, 2024).
The Histogram of the Adjusted Stock Price is almost
symmetrical, with a mean of 85.86 (Table 7) and a median of 84.27 (Table 7). The
standard deviation for the adjusted price is 40.58 (Table 7), indicating that
the data is dispersed widely. The histogram also suggests volatility due to the
various peaks and dips. The standard deviation for the volume is 965,426.
Because of the large spread and tendency to rise and fall, these are potential
indicators of a high-risk stock.
High volatility is often associated with significant
peaks and dips where the prices change dramatically over a short period. Low
volatility means less fluctuation and, therefore, a less risky stock. Higher
volatility means the price is more likely to fluctuate dramatically over a
short period, thus making it a riskier option (Hayes, 2024). Volatility = σ√T
where σ is the standard deviation of returns and T is the number of periods in
the time horizon (253) (Hayes, 2024). Because the standard deviations for the
adjusted stock prices and the stock volume are significant, these charts also
indicate high volatility. In addition to the data, Crocs, Inc. has a
significantly larger debt-to-equity ratio, 92.5, compared to its competitors.
CROX's annual earnings ratio of 9.3x is good, but when the earnings growth of
5.3% is also factored in, this rate is not as good as its competitors, with
growth rates ranging from 9.3% to 15.3%. Another risk factor that analysts
consider is the recent insider sales of 20k stocks
(Simply Wall St, 2024). After considering all the factors, one can see that
CROX is a strong company that has overperformed by industry standards and has
expected future growth but also has multiple associated risks. I would not
recommend the purchase of CROX due to the risk. However, I would recommend
Crocs, Inc.’s peer Skechers as a less risky option since the company only has a
7.3 equity-to-debt ratio, 8 billion in revenue, no recent insider selling, and
a 14.7% earnings growth rate.
References
Capella
University. (2024). Using analytic techniques to add meaning to data
[Video transcript].
https://media.capella.edu/coursemedia/mba5008element19233/wrapper.asaust
Crocs, Inc. (2005, September 14). Croc and roll
[Press release]. https://investors.crocs.com/news-and-events/press-releases/press-release-details/2005/Croc-and-Roll/default.aspx
Crocs, Inc. (2021, December 23). Crocs, Inc. to
acquire casual footwear brand HEYDUDE [Press release]. https://investors.crocs.com/news-and-events/press-releases/press-release-details/2021/Crocs-Inc.-to-Acquire-Casual-Footwear-Brand-HEYDUDE/default.aspx
Crocs, Inc. (2024a, January). A leader in global
casual footwear [Video].
https://s22.q4cdn.com/133460125/files/doc_presentations/2024/01/2024-ICR-Presentation-vF-1.pdf
Crocs. Inc. (2024b, February 15). Crocs, Inc.
delivers record fourth quarter and full year 2023 revenue and EPS [Press
release].
https://inestors.crocs.com/news-and-events/press-releases/pres-release-details/2024/Crocs-Inc.-delivers-record-fourth-quarter-and-full-year-2023-revenue-and-eps/default.aspx
Crocs, Inc. (2024c, May 7). Investor relations.
Crocs Corporate Website. https://investors.crocs.com/overview/default.aspx
Duggan, W. (2024, July 30). Stock market forecast
for 2024. Forbes.
https://www.forbes.com/advisor/investing/stock-market-forecast-2024/#:~:text=The%20S%26P%20500%20generated%20an,all%2Dtime%20highs%20in%2020
Furhmann,
R. (2024, June 21). How to calculate return on equity (ROE).
Investopedia.
https://www.investopedia.com/ask/answers/070914/how-do-you-calculate-return-equity-roe.asp#:~:text=ROE%20%3D%20Net%20Profit%20Margin%20x,x%20(1%20%2D%20Tax%20Rate)
Hayes, A.
(2024, July 3). Volatility: Meaning in finance and how it works with stocks.
Investopedia.https://www.investopedia.com/terms/v/volatility.asp#:~:text=How%20to%20Calculate%20Volatility,is%20$2%2C%20and%20so%20on.
Holman, J. (2023, March 27). People
started buying Crocs during the pandemic. They can’t stop. New York Times.
https://www.nytimes.com/2023/03/27/business/crocs-sales.html#:~:text=The%20stock%20prices%20and%20sales,increased%20200%20percent%20since%202019.
Kenton, W. (2024, June 12). S&P
500 Index:What it’s for and why it’s important in investing. Investopedia.
https://www.investopedia.com/terms/s/sp500.asp
Lind, D. A., Marchal, W. G., & Wathen, S. A. (2022). Basic
statistics for business and economics (10th ed.). McGraw-Hill.
Sandu, B. (2023, September 25). The Crocs logo
history, color, fonts, and meaning [Logo image with shoes]. Design Your
Way. https://www.designyourway.net/blog/crocs-logo/
Sandu, B. (2023, September 25). The meaning
behind the Crocs logo [Logo image].
https://www.designyourway.net/blog/crocs-logo/
Simply Wall Street. (2024, August 6). U.S. luxury industry analysis.
Simply Wall St. https://simplywall.st/markets/us/consumer-discretionary/luxury
Yahoo Finance. (2024, July 23). Crocs, Inc. (CROX).
https://finance.yahoo.com/quote/CROX/
Zacks Equity Research. (2024, June 5). Is Crocs
(CROX) a buy as Wall Street analysts look optimistic?
