Mike Cintolo is a leading growth stock expert and editor of Cabot Top Ten Trader. Here, he looks at a footwear maker best known for its clogs and a apparel firm known for its fashionable outerwear.
Everybody knows Crocs (CROC), the distinctive (some would say “ugly”) plastic footwear beloved of children and beach-going adults. The Crocs company makes clogs, sandals, flip-flops, slides, shoes and boots, all using its proprietary Croslite resin material.
After four years of flat or negative revenue growth from 2014 through 2017 (including earnings losses in 2015 and 2016), the company has ridden a rebound that started in Q4 2017 to four straight quarters of mid-single digit growth.
The earnings picture is much stronger, with nine straight quarters of growth and three quarters in 2018 with positive results, including 15% in Q1, 30% in Q2 and 250% in Q3.
The shoes are still ugly, but management has gotten the company growing again, and analysts are forecasting 119% earnings growth this year and 134% in 2019.
In raising its guidance for the rest of 2018, management cited a greater reliance on e-commerce as a catalyst for continuing growth. It looks like having a footwear product that’s lightweight, won’t mark up your floors, loves the water and won’t get stinky is the right thing right now.
Since bottoming at 6 in May 2017, CROX has been on a powerful roll. The stock reached 20 in June and 22 in September before dipping to 18 in the weeks leading up to earnings on November 8. After that great quarterly report, investors kicked the stock to 28 on nearly six times average volume.
CROX has held onto almost all of those gains, trading under resistance between 27 and 28 with rising lows. Short sellers had about 17% of CROX shorted at the end of October, which might strengthen any rally should the stock head higher. If you want in, nibble on weakness.
Canada Goose (GOOS) is a newer, high-end apparel brand (mostly durable winter wear that’s both stylish and functional) that’s branching out into a few new areas, executing brilliantly and driving massive, estimate-beating growth along the way.
That trend continued in Q3, which is why the stock is back on the list of potential leaders of the next advance. Numbers-wise, the quarter was a blowout, with local currency sales (up 34%), EBITDA (up 53%) and earnings per share (up 59%) easily topping expectations, leading management to hike expectations for the current fiscal year ending in March (revenues up at least 30%, earnings up at least 40%).
Wholesale revenues did very well (up 18%), but it’s Goose’s move into e-commerce and the opening of its own retail stores that is boosting growth, with direct-to-consumer revenue up around 150% and making up 22% of revenues.
Beyond its signature jackets, winter hats, scarfs and the like, the company has moved into springwear and knitwear, and its purchase of Baffin earlier this month, has moved into the performance outdoor (hunting, hiking, camping, snowshoeing, etc.) footwear category as well.
Throw in increased margins and some commentary about its increasing penetration in China, and big investors snapped up shares after the report. We like the story.
GOOS originally broke out last November around 22 and, with one notable hiccup along the way, zoomed as high as 69 in June of this year. But that run needed to be consolidated, and that’s what the stock did during the next four months, eventually sagging to its 40-week line in the October market wipeout.
The bounce off that line was very strong, and last week, GOOS soared to new highs on nearly quadruple its average weekly volume. We love the power, but would aim for dips to start a position.
