Social arbitrage investor Chris Camillo is always looking for trade ideas based on trends and finding good stories ahead of Wall Street. One of his best investments has been an ugly shoe company that he thinks could be one of the best stories moving forward, with Wall Street undervaluing an acquisition and the story.
Investing in Crocs: Camillo, who is a member of Dumb Money TV with Dave Hanson and Jordan Mclain, told Benzinga he’s been investing in Crocs Inc (NASDAQ: CROX) for a decade on an off.
Camillo said he’s made strong returns over the years trading in and out of the stock, and said it’s been a fairly easy company to trade.
“The market has generally always hated Crocs,” Camillo said.
The investor said Wall Street has never understood the brand and treated the company like a fad or “the longest lasting fad ever.”
“Wall Street just doesn’t believe in the durability of the brand.”
The COVID-19 pandemic led to a turnaround in consensus opinion, with revenue growth “so extreme” and strong margins that Wall Street could no longer ignore.
HeyDude Acquisition: Crocs announced a $2.5 billion acquisition of casual footwear brand HeyDude in December 2021.
Camillo, who owns six pairs of the HeyDude shoes, calls the company’s product a casual loafer or featherweight loafer.
HeyDude has a strong presence in southern states and has built what Camillo calls a cult-like following, but could be missed by Wall Street due to its spread out popularity.
“Something I call geographical arbitrage,” Camillo said.
The large acquisition wasn’t loved by Wall Street and was seen by some investors and analysts as a desperation move by Crocs out of the pandemic. The thought was Crocs was a pandemic play like Peloton (NASDAQ:PTON) Interactive (NASDAQ: PTON) and Shopify (NYSE: SHOP), Camillo added.
“It’s a thesis I adamantly disagree with. I actually think the acquisition of HeyDudes might have been the smartest acquisition of the year.”
Camillo said he’s been studying the brand, and it has strong customer loyalty, with Crocs having a plan to expand the brand through its distribution and retail network.
“They’re exceptionally comfortable, like the Crocs for people who don’t like Crocs.”
As a social arbitrage investor, Camilo analyzes social media and trends data. The investor told Benzinga a search for HeyDude on TikTok will show videos with tens of thousands to hundreds of thousands of likes.
Camillo called the HeyDude purchase an “acquisition that will either make or destroy Crocs, no doubt about it.”
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Crocs Growth: Outside of the HeyDude acquisition, Camillo thinks the Crocs brand remains strong and is misunderstood.
“I don’t see Crocs trend falling apart post pandemic,” Camillo said.
The brand is popular with Gen Z and did several partnerships with Luke Combs and Justin Bieber to bring new fans to the company.
“Celebrity collab strategy is undeniably successful for Crocs.”
The company is popular with middle schoolers and athletes, something that could make the company a back-to-school retail play.
What’s Next: Crocs is set to report second quarter financial results after market close Thursday. Benzinga Pro data shows analysts expecting the company to report revenue of $937.4 million for the second quarter. Data shows the company has beat revenue estimates from analysts in the last eight consecutive quarters.
Camillo said the key will be comments on how HeyDude is doing for Crocs in the earnings report as “they have to prove their thesis.”
“I think all eyes are on HeyDudes this quarter.”
Eyes will also be on costs, Camillo added, saying every brand is going through issues with costs.
Camillo remains long shares of Crocs and thinks he will be able to see any momentum or trends for the company before it shows in the financials.
“Anybody can out and interview store retailers that sell Crocs.”
Camilo said there’s a high level of visibility into the product, business traction and sales traction.
Another potential catalyst to watch is the reinstatement of share buybacks. Camillo said Crocs upset a lot of investors and may have seen shares fall after taking on a large amount of debt for the HeyDude acquisition and suspending its share buybacks.
The company has a plan to reinstate share buybacks by summer of 2023, something that could be discussed in its newest earnings report.
Camillo is bullish on the company, assuming it can integrate the acquisition and expand and keep its brands trending with fans.
“This is the number one opportunity in retail right now, the bar is set so low right now.”
CROX Price Action: Crocs shares are up 6% to $77.13 on Wednesday, versus a 52-week trading range of $46.11 to $183.88. Shares are down 41.62% year-to-date in 2022 at the time of writing.
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