The prolonged turnaround at casual shoe maker Crocs (Nasdaq: CROX) appears to be finally working. Results in 2Q17 show that revenues have largely stabilized despite Crocs’ winnowing their distribution channels. Profit margins are higher, inventory is lower and higher-quality, and cash flow is increasing.
Casual shoe maker Crocs (Nasdaq: CROX) reported weak 4Q16 results. Good progress with its operational turnaround is being hampered by slow but steady revenue decline. The CEO was replaced by the current president. We still like the story but it requires more patience.
With a successful turnaround, we would expect to see considerably higher earnings and cash flows, along with higher multiples for this retail stock pick; and a private equity firm has a $14.50 conversion price on its preferred stock, which further incentivizes management and board to produce shareholder value.
First quarter earnings of toy maker Mattel (Nasdaq:MAT) were hurt by the strong dollar and the loss of high gross margin Disney Princess dolls, but core revenues are stabilizing and the earnings outlook remains strong.
In nearly every case, the shares of a company in bankruptcy become worthless. In very rare cases, however, they can become great investments. W.R. Grace (NYSE:GRA) shares produced a 75-fold return, as an example. With California utility PG&E (NYSE:PCG) now in bankruptcy, the range of possible outcomes for its equity is wide.
In reading recent editions of The Turnaround Letter, you have probably noticed that we are increasingly using EV/EBITDA as a valuation measure, rather than the better-known price/earnings multiple. We thought it might be useful to describe this measure and why we like it.
This Forbeswrite-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.
George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."