By Teresa Rivas

If summer is time for lemonade, baseball, and plastic shoes, it may just be time to buy Crocs stock.

Crocs hasn't had an easy time of late. Since November 2024, when it tumbled on disappointing results for its HeyDude brand, shares have bounced around aimlessly amid concerns about sales and margins. It hasn't helped that Crocs makes about half of its shoes in Vietnam, meaning tariffs will raise its costs. The stock has fallen about 4% this year, even as the S&P 500 index has rallied 5.3% to hit a new high.

But it might be time for Crocs to exit the doldrums. Once maligned for their distinctive appearance and plastic composition, Crocs have gone mainstream, and the recent sales decline says more about management missteps than lack of demand. Crocs stock is cheap relative to its own history, its peers, and the S&P 500. Assuming profit growth resumes next year, this looks like a buying opportunity.

It's not that everything is great right now. Earnings per share are expected to dip for 2025, after all. But analysts expect a more than 4% increase next year -- and Crocs trades for just eight times 2026 EPS. That's below its five-year average of 10.3 and markedly below most of its footwear peers, including Birkenstock Holding, Deckers Outdoor, and Adidas, which nearly all command double-digit multiples. Crocs' gross margin stands at nearly 58% -- also above its five-year average -- and despite worries that tariffs will hurt profitability, consensus calls for the figure to rise going forward.

Unlike some shoe makers, Crocs is doing what it can to make sure that there isn't too much inventory, which would force it to cut prices to drive sales. Although that may hurt in the near term, it will preserve pricing power, likely the smart long-term move. "Management has made it clear that they would rather miss sales and have clean inventory to help preserve margins," notes BofA Securities analyst Christopher Nardone, who reiterated a Buy rating on the shares earlier this week. His $135 price target suggests 26% upside from a recent $107.

Crocs is also expanding internationally, as the company has a relatively small share in regions like Western Europe, China, and India that look poised to grow rapidly. Stifel analyst Jim Duffy cited "evidence of Crocs brand vitality in North America...and geographic diversification" as proof of its "sustainable earnings power" when reiterating his Buy rating during the depths of the tariff panic in April.

Of course, the stock may trade around headlines going into next week's expiration of the 90-day reciprocal tariffs with China. Yet BofA's Nardone argues that Crocs' "margin defensibility should shine despite tariffs," and that the current framework of 10% universal tariffs and 55% China tariffs "is a manageable scenario" for the company, which might look to raise prices going forward to further offset the impact.

Likewise, many analysts are hopeful that the company's HeyDude unit, which the company acquired in 2022 and now accounts for some 20% of its sales, will also see improving metrics. And its Jibbitz line of high-margin shoe charms continues to ink high-profile partnerships with brands like Hello Kitty and Pokémon.

Boots may be for walking, but Crocs has more room to run.

Write to Teresa Rivas at teresa.rivas@barrons.com

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July 02, 2025 01:00 ET (05:00 GMT)

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