Insiders Wearing Their Bullishness

Photo by Bernard Hermant on Unsplash

When investors see insiders loading up on their stock, especially when a few have a solid history of buying when the stock is lower and selling when it’s higher, it might be a good idea to give that company some consideration.

Last week, a trio of  Crocs, Inc. (CROX) insiders combined to buy 6,712 shares for $485,553.92. Since the middle of February, a total of five CROX executives acquired shares, outlaying $3,531,255. (1) A pair of the shoppers have a history of buying Crocs shares at lower prices and selling at a higher price.

Director Ronald Frasch spent a quarter million dollars on Crocs shares on March 16th at $77.02. Prior to that, he sold shares twice in 2021 at $153.92 and $101.45, from the most recent back. In 2016 and 2014, Frasch was a buyer, acquiring stock at $9.22 and $12.88. In 2012, he sold at $13.67 and $19.79. (2) Director Frasch appears to have a history of being on the right side of the trade.

Director Thomas Smach also has a knack of getting it right. Smach bought twice since February 17th. He wrote a check for more than $1 million in the middle of February and wrote another for $390,194 on March 3rd. (2) His previous four transactions were sales between $20.14 to $38, which followed a trio of buys between $9.98 and $12.60. Smach was a pure seller from 2007 to 2014 as the stock fell. He started his selling streak at $50.01 in 2007 which followed a 20,000-share purchase at $21 in 2006. (3)

In case you don’t know, Crocs is a world leader in innovative casual footwear for men, women, and children. Its offerings include clogs, sandals, slides, flip-flops, boots, flats, wedges, platforms, socks, shoe charms, loafers, sneakers, and slippers. The company sells its products in approximately 85 countries.

The handful of insiders loaded up on the shoemaker $100 below its 52-week high of $183.88. As we type, CROX trades at $83.12 and Wall Street has a one-year price target of $165.63. (4) Analysts expect the footwear company’s earnings to increase aggressively this year and next. The consensus for 2022 is $10.01, up from $8.32 in 2021. For 2023, the consensus earnings per share (EPS) jumps to $12.33. Sales are also expected to leap forward to $4.06 billion in 2023 from this year’s projection of $3.42 billion. (5)

Despite the projected attractive earnings and sales growth, CROX trades at a discount to its peer group based on Price to Earnings (P/E). The typical company in the space trades at 18.5 earnings vs 10 for CROX, which is the five-year low for the shoemaker. The average P/E for Crocs is 48.43 since 2017.

If CROX maintains its discounted P/E of 10 and hits Wall Street’s 2023 projection of $12.33 and trades at 10 times earnings, then the stock could potentially hit $123.30. At the industry average P/E of 18.5, the possible price target jumps to $228.72.

The peer P/E could prove to be a touch on the conservative side as it’s been our experience that most companies trade at a premium to their growth. For example, for the last five years, CROX averaged growth of 23.2% with an average P/E of 48.43. So, there is room for multiple expansion if Crocs meets or exceeds anticipated earnings expansion.

Overall: Crocs, Inc. (CROX) appears to offer investors an attractive reward-to-risk ratio. The specialty shoemaker doesn’t need to trade with crazy valuations for its share price to increase by nearly 50% in the next two years, provided they hit analyst expectations for 2023. Of course, the risk is that the economy slows or heads into recession and consumers spend less, maybe a lot less than expected.

CROX is appropriate for growth investors with an above-average risk tolerance and a time horizon of at least 18 months.


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