CrocsNASDAQ: CROX

The stock got slammed after management lowered its guidance.

I maintain my “buy” rating for Crocs stock, while reducing my price target to $132, as the management reduced its FY24 revenue guidance, despite outperforming in its Q3 earnings report. The downward revision in FY24 revenue guidance is primarily driven by its HEYDUDE segment, which is taking longer than expected to demonstrate a material revival. However, underlying fundamentals of HEYDUDE are improving, with expanding gross margins and ASP's. Plus, easier comps in FY25 should act as a tailwind too.

Crocs stock is undervalued despite strong brand growth, presenting a potential buying opportunity. HEYDUDE's struggles impact results, yet CROX's core brand momentum remains solid. Crocs' cash flow and buybacks support long-term shareholder value despite market concerns.

Crocs' stock dropped nearly 20% after 3Q24 results, driven by declining operating margins and a delayed Hey Dude turnaround, despite international growth. CROX trades at a low P/E of 9x FY24 earnings because of concerns about margin sustainability and profitability. The Company's explosive post-pandemic growth now faces fashion risk, and Hey Dude's underperformance adds uncertainty to future revenue and margin stability.

Shares of Crocs plunged 19% due to HEYDUDE's ongoing struggles, but I see this as a buying opportunity given Crocs' overall investment case. Despite HEYDUDE's disappointing performance, Crocs' profitability remains robust, with expanding gross margins and record adjusted EPS expected for the year. Crocs' healthy free cash flow profile and balanced capital allocation plan, including debt repayment and share buybacks, improve the stock's appeal.

The heavy selling pressure might have exhausted for Crocs (CROX) as it is technically in oversold territory now. In addition to this technical measure, strong agreement among Wall Street analysts in revising earnings estimates higher indicates that the stock is ripe for a trend reversal.

The Crocs brand is growing, but Heydude is a drag on results.

Crocs' shares dropped nearly 20% post-Q3 earnings despite beating estimates, presenting a buying opportunity at a single-digit P/E ratio. The HEYDUDE subsidiary's struggles are significant but represent only 20% of Crocs' business, with the core brand maintaining strong performance. The company pulled down its revenue guidance for FY24 due to HEYDUDE's slow sales, but actually boosted its full-year EPS expectations.

“It has not gone as we would have hoped and expected,” Crocs CEO Andrew Rees said.