Now that society is gradually reopening, people will be spending that much more time out and about, shopping, socializing, playing sports, and enjoying life. This means the sales of footwear are likely to increase.

 
Skechers (SKX) and Crocs (CROX) have emerged as two of the most popular footwear brands in the world. In particular, youngsters in the Generation Z and millennial age cohorts are partial to these brands.
 
They’ve been less affected by the coronavirus as sales of comfortable shoes have remained strong during the pandemic. Below, we provide a look at both SKX and CROX to help investors determine which is the better buy.
 
Crocs (CROX)

If you were to poll those who own both CROX and SKX kicks, you would find the majority are adamant that CROX footwear is more comfortable. However, CROX footwear is not exactly stylish. CROX kicks are perfect for lounging around the home, running errands, hanging out with friends, and most other non-athletic purposes as long as looking cool is not the primary objective.

CROX footwear sells quite well even though it lacks universal aesthetic appeal. CROX relies on North America for more than half of its sales. While some other footwear companies have billions in cash reserves, CROX only has $100 million. Add in the fact that CROX has less than 400 stores and investors have all the more reason to be concerned unless the company quickly pivots toward predominantly online sales.

The top analysts have mixed opinions on CROX, setting an average price target of $65.44 for the stock. Of the 10 analysts who have studied the CROX, seven recommend buying, and three recommend holding. CROX has a forward P/E ratio over 24, a fairly high figure for a sneaker company, indicating it might be slightly overvalued. Furthermore, there is a chance CROX investors will take their profit off the table shortly simply because the stock has soared following its coronavirus selloff this past spring.

Skechers (SKX)

SKX footwear is comfortable, affordably priced, and stands the test of time. Though most people don’t consider SKX sneakers to be optimal for running, these kicks hold up quite well when pounding the pavement. Investors tend to gravitate toward SKX as its brand is better known than other footwear companies including CROX.

Take a walk around any major city, suburban mall, or college campus and you are likely to find several people wearing SKX kicks yet you are not guaranteed to find anyone rocking CROX footwear. Add in the fact that SKX has an expansive digital network and more diversification both in terms of product and location compared to CROX and investors have all the more reason to favor SKX.

While most of CROX sales stem from North America, less than 40% of SKX revenue comes from the continent. SKX has a comparably attractive balance sheet with more than a billion dollars in cash reserves. Most CROX offerings are fairly similar both in terms of form and function. In comparison, SKX has more expansive sneaker variations as well as other product offerings including clothing, accessories, and eyewear. SKX operates more than 1,100 retail stores. This expansive retail presence certainly ameliorates rapid growth yet it has been challenging to sell anything at retail brick-and-mortar stores during the pandemic.

At this point, it is unclear if SKX’s investment in brick-and-mortar is worth the gamble. It seems like a sensible strategy because most people want to try on their sneakers before purchasing simply because size and comfort differ from one sneaker maker to the next. Though it is possible to return sneakers purchased online, doing so is a hassle so we won’t crucify SKX executives for prioritizing retail.

The Verdict

The POWR Ratings give a slight edge to CROX. CROX has “A” grades in the Peer Grade, Trade Grade, and Buy & Hold Grade components. The stock is ranked 7th of 65 in the Fashion & Luxury category. SKX has an “A” grade in the Industry Rank component along with a “B” grade in the Trade Grade component. SKX is ranked 12th of 34 stocks in the Athletics & Recreation category.

What matters most is how the customers of the future view the footwear and other products sold by these companies. Only time will tell if CROX can successfully expand its footwear offerings, possibly shifting to a more conventional design with a more mass appeal or even bolstering its offerings with additional products. However, this is a tall task and CROX executives have not detailed a plan to make it come to fruition.

In short, there is comparably more risk of investing in CROX compared to SKX. If you want a piece of the footwear industry in your portfolio and are tolerant of risk, opt for CROX. If you are looking for more of a value footwear stock with less risk, SKX is the better choice.

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