Why Crocs Stock Was Crushed Today


What happened

crocs (NASDAQ: CROX) was one of the big market winners in 2021. The popular clog and sandal maker has seen explosive growth and its share price has nearly doubled since the start of the year. That’s even more impressive given that stocks have fallen more than 30% in the past month, including Thursday morning’s 16.7% drop at 10:24 a.m. ET.

So what

On Thursday, Crocs announced the acquisition of private competitor Heydude for $ 2.5 billion. Of this, $ 2.05 billion will be paid in cash, with the balance going to the founder of Heydude in the form of Crocs shares. The cash portion will be primarily funded by a new term loan facility, which may be one of the reasons investors are offering a lower bid.

Image source: Getty Images.

Another selling factor may be related to the previously mentioned success the title has enjoyed this year. Thursday’s announcement may have been just another catalyst signaling investors to take profit.

Now what

According to Crocs CFO Anne Mehlman, Heydude – founded in Italy in 2008 – will be immediately accretive to the acquirer and help increase its cash flow generation. The strong cash flow and high operating margin will help the business deleverage quickly, she said. Mehlman added that the company expects Heydude to generate long-term shareholder value as it “has experienced incredible revenue and profit growth over the past few years.” Heydude will operate as a stand-alone division and will continue to employ founder Alessandro Rosano as strategic advisor and creative director.

In Crocs’ third quarter earnings report in late October, the company told investors it expected revenue growth of 62% to 65% for this year, and a further 20% in 2022. The company had cash and cash equivalents of $ 436.6. million dollars on its books as of September 30 – down from just $ 135.8 million at the end of 2020.

This helps explain why management expects to be able to deleverage quickly with the additional cash flow from the acquisition. But some investors still seem to be taking profits.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


Comments are closed.