Crocs has gotten torched over the last six months - since October 2024, its stock price has dropped 29.2% to $96.76 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Crocs, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Even though the stock has become cheaper, we don't have much confidence in Crocs. Here are three reasons why you should be careful with CROX and a stock we'd rather own.
Why Is Crocs Not Exciting?
Founded in 2002, Crocs (NASDAQ: CROX) sells casual footwear and is known for its iconic clog shoe.
1. Weak Constant Currency Growth Points to Soft Demand
In addition to reported revenue, constant currency revenue is a useful data point for analyzing Footwear companies. This metric excludes currency movements, which are outside of Crocs’s control and are not indicative of underlying demand.
Over the last two years, Crocs’s constant currency revenue averaged 8.2% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Cash Flow Margin Set to Decline
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the next year, analysts predict Crocs’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 22.5% for the last 12 months will decrease to 19.6%.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Crocs’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Crocs isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 8× forward price-to-earnings (or $96.76 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of Crocs
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