The stock of Crocs (NAS:CROX, 30-year Financials) shows every sign of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $103.88 per share and the market cap of $6.8 billion, Crocs stock is believed to be significantly overvalued. GF Value for Crocs is shown in the chart below.
Because Crocs is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 12.6% over the past three years and is estimated to grow 17.09% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Crocs has a cash-to-debt ratio of 0.46, which which ranks in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories. The overall financial strength of Crocs is 6 out of 10, which indicates that the financial strength of Crocs is fair. This is the debt and cash of Crocs over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Crocs has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $1.6 billion and earnings of $5.9 a share. Its operating margin is 21.67%, which ranks better than 95% of the companies in the industry of Manufacturing - Apparel & Accessories. Overall, the profitability of Crocs is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Crocs over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Crocs is 12.6%, which ranks better than 87% of the companies in the industry of Manufacturing - Apparel & Accessories. The 3-year average EBITDA growth is 69.6%, which ranks better than 95% of the companies in the industry of Manufacturing - Apparel & Accessories.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Crocs's return on invested capital is 66.76, and its cost of capital is 13.20. The historical ROIC vs WACC comparison of Crocs is shown below:
In short, Crocs (NAS:CROX, 30-year Financials) stock shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 95% of the companies in the industry of Manufacturing - Apparel & Accessories. To learn more about Crocs stock, you can check out its 30-year Financials here.
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