1 Growth Stock Down 40%: Should You Pile Into This Well-Known Consumer Brand?

After terrific performances in 2023 and 2024, the major market indexes are near record territory so far this year. Investors looking to put money to work in this type of bullish market environment might be discouraged by the fact that there might not be too many compelling buying opportunities.

But not all hope is lost. As of this writing on the afternoon of Feb. 20, there's one growth stock that trades 40% below its all-time high from November 2021. This is despite its impressive 180% rise over the past five years.

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Does the current dip mean you should pile into this well-known consumer brand right now?

Reporting strong Q4 results

It's always a good sign when a business exceeds Wall Street estimates. This is exactly what footwear maker Crocs (NASDAQ: CROX) did. In fact, its results were so well received that shares immediately jumped 24% following the announcement on Feb. 1.

During the last three months of 2024, Crocs posted revenue of $990 million, up 3.1% year over year. This marked a slowdown from the monster gains of the previous few years. However, it was well ahead of the consensus estimate of $960 million. It's worth mentioning the positive trends happening both within the direct-to-consumer channel and in international markets.

The Crocs brand's revenue in 2024 was 166% higher than five years before in 2019, showcasing strong long-term growth. Clearly, the business has been doing something right as it wins over more customers across the globe.

Betting on the brand

If you're seriously considering putting money at risk in Crocs stock, then you have to be convinced that the brand has staying power. In other words, what are the chances that Crocs will remain relevant a decade from now (and beyond)?

This line of thinking applies to any apparel or footwear brand. The ability to successfully innovate product offerings and deliver fresh designs that drive consumer interest is critical to lasting success, especially when customer tastes can be so fickle. What's more, being able to lean on effective marketing campaigns to broaden exposure is also key.

Even the best businesses in the industry aren't immune from faltering. Just look at Nike, whose lack of product innovation has led to falling revenue.

Forecasting a brand's relevance is obviously a difficult thing to do, as the future is unknowable. On the one hand, growth for Crocs has slowed dramatically, but the blame could be pitted on the broader macro environment and softness with discretionary spending. What's more, Crocs' sales today are still much higher than just a few years ago, with its Q4 gross margin holding up at a stellar 57.9%. This indicates pricing power.

On the other hand, what makes things challenging in Crocs' case is its heavy reliance on a single product, the foam clog, to drive the lion's share of financial performance. The foam clog now represents 58% of overall revenue. It might prove difficult to keep innovating with a single design.

Crocs has done a good job raising the brand's awareness. Its marketing strategy emphasizes an increasing digital presence, as well as notable collaborations. This can keep consumers interested.

On the discount rack

However, the market still doesn't seem convinced Crocs has what it takes to stay relevant over the long term. That's evidenced by the current valuation, with shares trading at a dirt cheap P/E ratio of 6.8. I'd argue the investment community still doesn't believe that Crocs is more than a fad.

To its credit, Crocs remains in solid financial shape, which can reduce risk for prospective investors. It raked in $950 million in net income and $923 million in free cash flow last year. Management not only repurchased $551 million worth of stock in the last 12 months, but they were able to repay $323 million of debt. These are all encouraging signs.

Given the ultra-cheap valuation, buying Crocs stock makes sense for value-conscious investors hoping for improvement in market sentiment.

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Crocs. The Motley Fool has a disclosure policy.