Top Picks 2017: Crocs

01/17/2017 7:00 am EST


George Putnam

Editor, The Turnaround Letter

Our Top Pick for 2017 for speculative investors is this maker of iconic casual footwear that reached fad status about 10 years ago, explains George Putnam, editor of The Turnaround Letter

Crocs (CROX) went all-out to meet the soaring demand. Then the fad faded, and the global financial crisis hit. Sales dropped 24% over the next two years, and the share price collapsed by more than 90%.

The company underwent several unsuccessful attempts to recover, and by 2014 the business was in near-total disarray. 

The new management is now making meaningful improvements, including slashing the product count by 50%, closing unprofitable stores, terminating weak distribution partners, and improving overall execution.

Much remains to be done, but the results can already be seen in expanding margins and better inventory levels. Crocs’ balance sheet is solid with $150 million in cash yet essentially no debt.

However, investors have lost patience as the company’s pricing and volume remain volatile, pushing the shares down to seven-year lows. 

Nonetheless, the brand is still strong, and the new management team appears to be taking the right steps to rebuild shareholder value.

At just over 6.4x next year’s estimated EBITDA (a measure of cash flow), we think Crocs’ shares have tremendous rebound potential.

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