Is Crocs (NASDAQ: CROX) stock still a buy after the massive rally?

While throwing markets into disarray, the widespread shutdown also had a positive effect on industries like retail and technology, but there are surprise winners like Crocs, Inc. (NASDAQ: CROX) that witnessed strong sales growth during the pandemic. The company is riding the growing popularity of its innovative shoes that set a new trend in the casual footwear market.

Bio-based Shoes

The Broomfield-headquartered company this week introduced what is called bio-based footwear, as part of its effort to strengthen the eco-friendly business model and achieve net-zero emissions by 2030. The goal is to become a cent percent vegan brand before year-end by using sustainable alternative materials for production, packaging and e-commerce activities. The market responded positively to the launch and the stock made solid gains.

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Read management/analysts’ comments on quarterly reports

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CROX, which has been trading well above its long-term average for some time, reached an all-time high this week. Despite the rally, it is considered to be an affordable stock that has room for further growth. Market-watchers predict a 13% gain in the next twelve months.

Buy CROX?

It has been one of the fastest-growing stocks that outperformed the industry and the broad market consistently, at a time when the business world is passing through a challenging phase. Also, the management has hiked dividend at regular intervals, drawing the attention of income investors. By all accounts, Crocs looks like a good bet.

If its financial performance in recent quarters is any indication, the company is poised to deliver profitable growth in a sustained manner in the coming years. The management’s focus on direct-to-customer business should catalyze top-line growth going forward. Of late, the market share for non-core products like sandals is also rising. That should help the company meet its goal of achieving $1-billion free cash flow and $5 billion in revenue by 2026, on an annualized basis.

We can be incredibly profitable each quarter of the year. In terms of new products in the back end of the year, I would say particularly exciting is — as far as an online product, it’s been growing, been building now for about three, four years. But we don’t feel like in any of the prior years, we’ve really tapped the full potential of that. So we think for us both in the clog, but also some new exciting first product that will come out more broadly will be important in the back half.

Andrew Rees, chief executive officer of Crocs

Risks

Still, Crocs’ future prospects would depend a lot on on its ability to compete effectively with market leaders like Nike, Inc. (NYSE: NKE) and Skechers USA, Inc. (NYSE: SKX). The continuing COVID-related uncertainties in primary manufacturing countries and potential factory closures remain a challenge. Also, some experts believe a short-term pullback could be in the cards, given the stock’s multifold growth in the relatively short period.

Interestingly, profitability improved in every quarter over the past two years and growth accelerated during the pandemic. In the June quarter, revenues and earnings climbed to record highs of $641 million and $2.23 per share, respectively. Representing more than half of total revenue, direct-to-consumer sales grew a whopping 79%. Buoyed by the stronger-than-expected results, the management raised its full-year outlook for revenues and operating margin.

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In the past twelve months, Crocs’ market value more than tripled and the stock hit a new high this week. Continuing the uptrend, the shares made strong gains early Wednesday and breached the $150-mark in the afternoon.