It's a classic cult stock comeback story. While many considered Crocs (NASDAQ: CROX) a fad shoe company -- famous for its colorful rubber clogs -- the footwear maker has proved its staying power.
At its 2007 peak, shares traded near $72. Unable to sustain nearly 140% annual revenue growth, the stock precipitously plummeted. By early 2009, it hit an all-time low near $1. The stock clawed its way to a top in mid-2011 near $32. It then ultimately rode a steep downtrend to a multi-year low of $12 by late 2012.
Crocs appeared doomed, but on the heels of record full-year 2012 revenue of $1.1 billion, the stock is once again in a strong uptrend. And, as I'll explain, the technicals suggest Crocs may now be on the brink of a significant bullish turnaround.
This turnaround can be attributed to innovative transformation. No longer just a single-shoe company focused solely on injection molded clogs, Crocs has turned itself into an international, multi-product footwear emporium. Crocs currently offers more than 300 shoe styles in over 90 countries.
In the fourth quarter of 2012, Croc's revenue increased 10%, thanks to 38 new stores in Europe. There are already over 100 European Crocs stores. In 2013, the company plans to open at least 95 more. Asia is also a Crocs hotspot. During 2012, Asian sales boosted the company's total revenue 20%.
And, over the coming weeks, you can expect the company to have a spring in its step as it releases its new line of shoes. Management anticipates the Huarache collection, which is its version of the Mexican, or "Cleopatra" sandal, will be the company's 30th shoe style to sell over 1 million pairs. Croc's molded boat shoes and women's wedge line are also expected to be popular.
Traders certainly seem to have faith in the stock's turnaround. Shares recently broke a major downtrend line that formed off the August 2011 $32.47 high. The break of this downtrend line is a highly bullish, technically significant move.
Shares are now on an intermediate-term uptrend and are just testing the 50-day moving average. The nearby 200-day moving average is approaching and appears close to crossing above the 50-day in a highly bullish technical formation known as a golden cross.
Significant overhead resistance lies ahead, around $19.61. However, if traders were to take a position in the stock at current levels, they could potentially make 20% returns. If the stock can surpass $19.61 resistance, an ascending triangle pattern would be bullishly broken. In this case, the stock could soar.
The bullish technical outlook is supported by strong fundamentals.
For the upcoming first quarter, to be reported April 25, analysts project the company's incoming shoe line will boost revenue 13.4% to $308.3 million, from $271.8 million in the comparable year-ago period. For the full 2013 year, analysts anticipate strong international demand will push revenue up 12.5% to $1.26 billion, from $1.12 billion last year.
The earnings outlook is similarly optimistic. For the upcoming first quarter, management expects increased global retail presence will push up earnings at least 3.2% to the range of $0.32-$0.34 per share, from $0.31 in the comparable year-earlier quarter. For the full 2013 year, analysts expect earnings will rise about 8% to $1.51 per share, from $1.40 per share last year.
The company is also attractively valued based on its trailing price-to-earnings (P/E) ratio of about 11.3 and its forward P/E ratio of around 9.5. That is well below the sector average of 25 times earnings.
Risks to consider: While Crocs has managed to prove it's not just a "one-shoe wonder," many trend-conscious consumers might be wary of buying the Crocs brand because they consider it passé. However, Crocs has done of remarkable job of recreating itself and has successfully expanded into new, developing markets. Doing so should ensure consistent growth into the foreseeable future.
Recommended Trade Setup:
-- Buy CROX at the market price
-- Set stop-loss at $13.73, slightly below current support
-- Set initial price target at $19.61 for a potential 20% gain by June 30