Crocs Inc (CROX)

[rayank]

(CROX) today: "A potential buyout target"

"Crocs is one of the famous manufacturers and designers of footwear, selling its products in more than 90 countries via retailers, distributors and directly to consumers via its 53 company-operated retail stores. The company derived most of its revenue, nearly $600 million, from wholesale segment while the retail segment contributed nearly $306.7 million in 2012 sales. Crocs also sold a lot of its products via the Internet, with the total sales of nearly $96 million in 2012.

To look at any retail business, investors should pay attention to the company’s financial strength. Investors should invest in businesses with a strong balance sheet, so the company could overcome any unforeseen future challenges in the market. Investors might find it safe to invest in Crocs because of its conservative capital structure. As of March, it had $634 million in equity, only around $1 million in short-term debt and as much as $233 million in cash.

Moreover, Crocs has been a good cannibal, returning cash to its shareholders via share repurchases. Since November 2012, the company spent around $37.5 million to retire around 2.7 million shares. There are still 2.6 million shares remaining in the current share repurchase authorization.

What I also like about Crocs is its low valuation. The company is trading at $16.90 per share, with the total market cap of around $1.5 billion. The market values Crocs at 6.84 times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization).

I personally think that Crocs is a decent buyout candidate because of three main reasons. First is its decent cash flow generating capability. In the past five years, Crocs has managed to generate consistent positive operating cash flow and free cash flow. In 2012, its operating cash flow was $128 million while the free cash flow came in at $68 million. Second, the retailer has a conservative capital structure. Last, but not least, the company has a history of enhancing its shareholders' value with its share repurchase activities as mentioned above.

If Crocs is taken private, it could demand an EBITDA multiple of around 9, translating into more than $22 per share, a 30% premium to its current trading price."

http://beta.fool.com/hoangquocanh/2013/07/23/should-we-invest-in-these-three-outperform-rating/41258/?source=eogyholnk0000001