Crocs vs. Allbirds: Which Footwear Stock Is a Better Buy?

The ongoing sell-off in the equity market offers investors multiple opportunities to purchase growth stocks at a lower valuation. The threat of multiple interest-rate hikes coupled with macro-economic headwinds and the steep valuations surrounding growth companies have driven stock prices to multi-year lows, allowing you to buy the dip.

Retail stocks such as Crocs (CROX) and Allbirds (BIRD) are currently trading 46% and 63% below all-time highs, respectively. Currently, Crocs is valued at a market cap of $6 billion and Allbirds is valued at $1.89 billion.

Crocs went public in February 2006 and has since returned more than 600% to investors. Alternatively, Allbirds is a recent IPO that began trading last November and has been falling ever since. Let’s see which beaten-down retail stock should be part of your portfolio right now.

The bull case for Crocs

Crocs has managed to increase sales from $1.08 billion in 2018 to $1.38 billion in 2020. In the last 12-months, its revenue soared to $2.13 billion and the company expects to end 2021 with $2.31 billion in sales, an increase of 67% year over year. It also forecast an adjusted operating profit of 30% which is really impressive for a shoe manufacturer.

Crocs has seen a massive uptick in sales due to the emergence of athleisure as well as the ongoing pandemic. The company now expects to touch $5 billion in annual sales by 2026, driven by its expansion into high-growth markets such as Asia. Further, Crocs expects revenue to grow by at least 20% year over year in 2022 with an adjusted operating margin of 25%.

Crocs disclosed its intention to acquire Hey Dude for $2.5 billion where it will pay $2.05 billion in cash and $450 million in stock. Hey Dude is an Italian footwear brand and expects to generate between $700 million and $750 million in sales in 2022 with an operating margin of 26%.

If the acquisition is closed by mid-2022, Crocs will end 2022 with close to $3.5 billion in sales, making its valuation extremely attractive.

The bull case for Allbirds

Allbirds increase sales from $193.6 million in 2019 to $219.2 million in 2020. Analysts expect Allbirds sales to rise to $273 million in 2021 and to $353 million in 2022. In Q3 of 2021, the company increased revenue by 33% to $62.7 million which was above consensus estimates of $61.9 billion. Its gross margin also rose to 54.1%, compared to 52.9% in the year-ago period.

Allbirds CEO Joey Zwillinger stated, “Revenue was strong across channels and geographies, growing 33% year over year, with notable strength in U.S. physical retail. Importantly, we saw strong consumer response in the quarter to our new product innovation, including our new Perform Apparel line.”

Allbirds opened four new stores in Q3 taking its total store count to 31. It also forecasts sales between $270 million and $272 million in Q4 which is in-line with Wall Street expectations.

The verdict

Allbirds stock is valued at a forward price to 2022 sales multiple of 4.2x which is quite reasonable given its growth forecasts. Comparatively, Crocs is valued at a forward price to sales multiple of less than 2x. While Allbirds is posting an adjusted loss, Crocs is expected to grow its adjusted earnings to $9.98 in 2022, up from just $3.22 in 2020, suggesting its price to earnings multiple is extremely cheap at 9.6x.

I believe Crocs is currently the better investment, given its rising profitability, wider scale and cheap valuation metrics.

CROX shares were trading at $97.73 per share on Monday morning, down $4.41 (-4.32%). Year-to-date, CROX has declined -23.78%, versus a -10.51% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

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