Crocs, Inc.'s ( NASDAQ:CROX ) price-to-earnings (or "P/E") ratio of 13.6x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E's above 38x are quite common.
Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Crocs certainly has been doing a good job lately, as it's been growing earnings more than most other companies.
Looking at historical P/E values for Crocs, it seems that from the beginning of 2020 onward, P/E ranged from around 25 to 11.7, and mostly hovering around 13. This makes it seem like 13 is a safe P/E level for institutional investors, and the stock rarely exceeded those values.
Keen to find out how analysts think Crocs' future stacks up against the industry? In that case, our free report is a great place to start .
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Crocs' is when the company's growth is on track to lag the market.
If we review the last year of earnings growth, the company posted a terrific increase of 457%.The strong recent performance means it was also able to grow EPS by 7,525% in total over the last three years.Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to contract by 3.0% per year during the coming three years according to the seven analysts following the company.With the market predicted to deliver 13% growth each year, that deserves a deeper analysis.
It seems the decrease will not be a result of less sales, actually Crocs raised sales growth guidance to 60-65% for 2021. The expected decrease of EPS might be attributed to growth investments e.g. capital expenditures.
Crocs has spent around US$39m in CapEx in the last 12 months, while in their forward FY guidance they estimate an increase between US$80m to US$100m in capital expenditures for supply chain investments.
This means that while the company may see a drop in the bottom line, it will be a result of large capital investments that should fuel and sustain higher growth rates.
The Key Takeaway
Crocs is a healthy and profitable company, offering a consumer defensive product to the market. Investors can look onto Crocs both as a growth and a value maximizing company.
The current 13.6 P/E does not deviate too much from historical levels, which means the price is close to the appropriate range.
The examination of Crocs' analyst forecasts revealed that its outlook predicts shrinking earnings, however these are not a result of diminished growth expectations, rather a ramp up in capital expenditures to support their supply chain.
You should always think about risks. Case in point, we've spotted 4 warning signs for Crocs you should be aware of, and 1 of them makes us a bit uncomfortable.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.