This case looks at analyzing Crocs, Inc. and the tremendous growth they started off with as a new company in the apparel market. We also analyze Crocs competitors based upon three different ratios (PE, EV to EBITDA and EV to Sales) in order to gain an understanding of where Crocs stands in the market at the time of this case (2007). Using the growth rate estimates, we also value the company’s stock value. Certain assumptions are made regarding the sales and revenues for future years which in turn lead to assumed profit margins. There are three multiples in the case that can be taken into consideration to compare Crocs with other companies based upon. Price Earnings
EV to EBITDA
EV to Sales
To compare based on Price Earnings (PE), Crocs has $42.69 in trailing 1 in 2007 (Exhibit 6), which is in the range of primarily apparel average, $44.06 (Exhibit 5). When comparing this ratio to the competing companies Zumiez is the closest at $44.49 with the next closest being Deckers with a PE ratio of $30.90. Under Armour has higher PE of $61.09 (Exhibit 5) to Crocs and can be considered as third comparable company. The next valuation multiple is enterprise value (EV) to earnings before interest, tax, depreciation, and amortization (EBITDA). Crocs EV to EBITDA value was 27.74 which was calculated from (EV) $7,154 million divided by (EBITDA) $258 million which gave us 27.74. To compare based on EV to EBITDA ratio (EE), Crocs ratio is 27.74 trailing in 2007 (Exhibit 6), which is also in the range of primarily apparel 1 Trailing looks backward in time rather than leading which tracks towards forward. 2
average, 23.54 (Exhibit 5). Under Armour has the slightly higher EE ratio of 32 to Crocs. Zumiez has the second closest EE ratio of 21.27 (Exhibit 5) to Crocs. Deckers Outdoor which leads the category of primarily footwear has an EE ratio of 20.21 (Exhibit 5) to Crocs and can be considered as third comparable company. To compare based on EV to Sales (ES), Crocs ratio is 8.62 in trailing in 2007 (Exhibit 6), which is in the range of primarily apparel average companies, 8.87 (Exhibit 5). Under Armour has the slightly lower ES ratio of 5.11 to Crocs. Deckor Outdoor has the second closest ES ratio of 4.54 (Exhibit 5) to Crocs. Lululemon with higher ES ratio of 15.2 (Exhibit 5) can be considered as third comparable company to Crocs. In 2007, Under Armour and Deckor Outdoor have the closest multiples to Crocs. The last valuation multiple used was enterprise value (EV) to sales ratio. Crocs EV to sales ratio in 2007 is 8.62 which was calculated by (EV) $7,154 divided by the revenue which was $830 to determine the EV to sales ratio of 8.62. The closest companies to Crocs in this valuation is Under Armour and Deckers which have an EV to sales ratio of 5.11 and 4.54 respectively. With these three valuation multiples used, the companies that are most similar to Crocs at the time of the case are Zumiez, Under Armour and Deckers. On the other hand, one can also argue that Lululemon could be a proper peer for valuation purposes as of the case date because there are other involved factors, which can help determining a peer company such as comparable growth rate, risk and profit margin. In the fiscal year 2006 sales growth of Crocs had been %227 and growth of over %130 was likely for fiscal year 2007. Compound annual growth rate of sales of Lululemon is over %100 as shown in Exhibit 4. Risk is another parameter, which can be taken into account because Crocs and Lululemon are new high growth brands, they might have comparable risks. Crocs has also high profit margins on its products as a result of economies of scale as well as Lululemon (COGS to sales 48.3%). In addition, both Crocs and Luluemon use wide range of distribution channels. 3
In 5 years, Crocs’ EE ratio can be estimated as 9.04 based on the Yeung’s cash flow model (Exhibit 5): EE=EV/ EBITDA =7154/791=9.04
The companies at the time of the case...