Believe it or not, Crocs (NASDAQ:CROX) are making a comeback. And not a small comeback. A huge comeback. Indeed, this comeback is so big that CROX stock has been the best performing footwear stock in the market over the past six months, rising more than 120% over that stretch.
What’s going on here? A broad shift in fashion toward function over form, comfort over style and utility over fashion, driven mostly by over-saturation of social media and somewhat by the novel coronavirus pandemic. Amid this shift, Crocs’ ultra-comfy, ultra-cheap, multi-purpose and exceptionally versatile signature clogs have turned into the world’s “it” shoe.
More importantly, though, can this uptrend in CROX stock last?
Absolutely. When the trend is your friend in fashion, your stock tends to keep pushing higher. Fortunately for Crocs, this whole function-over-form fashion trend has staying power, meaning that Crocs will remain an in-demand footwear brand for the foreseeable future. So long as that remains true – and the valuation remains tangible, which it does today – then CROX stock will keep moving higher.
Next stop: $60. Here’s a deeper look.
An Emerging Fashion Trend With Staying Power
Anyone in the fashion industry will tell you that trends come and go as quickly as the sun rises and sets. But fashion experts will also tell you that, every once in a while, you get a trend that sticks. And when you get that, the entire fashion industry is uprooted.
See the rise of athletic apparel in the 1990s. Or the rise of athleisure in the 2010s. These fashion trends have stuck around for 10-plus years. They’ve redefined global consumer preferences and shopping behavior. And they’ve led to the creation of $50-plus billion brands like Nike (NYSE:NKE), Lululemon (NASDAQ:LULU) and Adidas (OTCMKTS:ADDYY).
Right now, we are in the midst of one of these powerful fashion trends with long-term staying power.
Some call it the ugly fashion trend. I call it the useful fashion trend. Regardless, this fashion trend emerged in 2014, is stronger than ever today and is all about a pivot toward function over form, comfort over style and utility over fashion.
This is more than just a fashion pivot. It’s a secular lifestyle pivot, too. We’ve swapped out suits and ties at work with flip flops and t-shirts. We’ve replaced “Good morning, sir, how are you” with “what’s up?” And we’ve gone from Victoria’s Secret angels to celebrating body positivity in models.
In other words, being “perfect” isn’t cool anymore. Being authentic is – and oftentimes, authentic runs parallel to imperfect.
In fashion terms, this means that consumers are ditching the aesthetic brands built to make people look perfect, and are instead opting for the authentic brands which make fashion products that are comfortable and useful.
Because this fashion trend is intertwined with a broader lifestyle pivot, it has long-term staying power. Over the next decade, you are going to see authentic brands with useful products outsell aesthetically perfect brands with flashy products.
That implies only good things ahead for CROX stock.
The Next Big Thing
Take one look at a Crocs’ signature clog, and you’ll immediately understand why the aforementioned “useful” fashion trend is a dream come true for the brand.
Personally, I like the look of Crocs’ clogs. But, I do understand that these clogs didn’t develop the nickname “ugly sandals” by accident. They’re clunky. They’re full of holes. And they make you look like you have Donald Duck feet.
But, these clogs are also the comfiest shoes ever. They are ultra-convenient, and can be slipped on and off, with or without socks, in less than two seconds. They are exceptionally versatile, and be used around the house, on walks, on hikes, when walking through water, etc. And, perhaps most importantly, they are affordable at just $40 to $60 a pair.
Logically, Crocs’ signature clogs are the most useful shoes on the planet. And, as the most useful shoes on the planet, they have become and will remain the “it” shoe amid the current fashion wave.
Because the current fashion wave will persist for the foreseeable future as part of a broader lifestyle pivot toward function over form, Crocs will continue to sell a lot of clogs over the next few years.
As the company does, CROX stock will keep pushing higher.
Strong Growth Profile
Thanks to favorable demand trend, the Crocs growth profile into 2025 is very strong.
Globally, footwear sales are projected to rise by ~5% per year into 2025. Assuming Crocs slightly expands market share over that period, then the company’s sales will likely grow at a 10% annualized pace. Factoring in some gross margin expansion on the back of favorable pricing trends and some opex leverage thanks to economies of scale, Crocs should be able to sustain ~15% profit growth into 2025.
Assuming so, then Crocs has high visibility to do at least $4 in earnings per share by 2025.
Consumer discretionary stocks historically average a 20X forward earnings multiple. Based on that sector-average multiple and an 8.5% annual discount rate, $4 in 2025 earnings per share implies a 2020 price target for CROX stock of nearly $60.
Thus, so long as the trend remains its friend, CROX stock will keep grinding higher.
Bottom Line on CROX Stock
Crocs is currently the hottest brand in fashion. So long as the trend remains the company’s friend – and the valuation on CROX stock remains tangible – shares of the sandal maker will keep pushing higher.
Right now, both of those things remain true.
So, for now, it’s best to stick with the rally in CROX stock.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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Written by Luke Lango.
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