As perhaps the most ubiquitous athletic apparel brand in the world, as well as one of the biggest shoe brands, everyone already knows about Nike (NKE -0.68%). But even though everybody knows about it, it seems like everyone is suddenly talking about it.
Nike is grabbing headlines because its suddenly and surprisingly made a change at the CEO position. After leading the company through the pandemic, the company decided it was time for John Donahoe go into retirement. And in his place, Nike is bringing back former executive Elliott Hill out of his retirement.
Moreover, Nike has also been in the news due to an investment from billionaire Bill Ackman. The known value investor has a hedge fund called Pershing Square, which only had investment positions in seven companies earlier this year. But Ackman made an eighth position in Nike by investing about $275 million.
Nike might be the talk of the town. But I prefer investing in shares of a different shoe stock today: Crocs (CROX -1.97%). Here's why.
Why I like Crocs stock better than Nike stock
Crocs is a shoe company comprised of its namesake brand and another brand called Heydude. It doesn't necessarily have much growth right now -- net sales in the first half of 2024 were only 5% from the first half of 2023. But it does beat Nike when it comes to margin and the valuation of the investment.
Nike's operating margin is currently about 12% and there's nothing wrong with that. But this is about what investors should expect -- not much has changed in over a decade. By contrast, Crocs' operating margin has steadily improved since CEO Andrew Rees took over in 2017. And it's presently holding steady at north of 25%, which is double the margin for Nike.
CROX Operating Margin (TTM) data by YCharts
When it comes to valuation, there's been a lot said about Nike's lower price. And it's true: Trading at 23 times its earnings, Nike stock has rarely been cheaper during the past decade. This valuation could have been part of the equation when Ackman bought shares.
However, Nike stock doesn't represent a meaningfully lower value than the average for the S&P 500. But trading at less than 11 times its earnings, Crocs stock does represent a significant value compared to the market average.
NKE PE Ratio data by YCharts
With better margins and a cheaper stock price, I have the beginnings of a solid thesis for why I prefer Crocs stock to Nike stock.
Driving the point home
Now some might point out that Nike is a special situation. After all, it just hired a new CEO who is very familiar with the industry and the brand. This could catalyze sales for Nike and send the stock soaring.
It's a fair point. But that positive outcome isn't guaranteed for Nike. Moreover, Crocs has its own special situation that many investors overlook.
Crocs acquired Heydude in early 2022 for $2.5 billion. Things started well but sales for Heydude have dropped recently -- Crocs is still growing as a whole, despite this headwind. But management believes it just made some short-term missteps and that growth for Heydude will resume before the end of the year.
Moreoever, Rees recently said, "We're as confident and as enthusiastic about the brand as we were when we bought it." Therefore, while Nike has a potential catalyst for sales growth, Crocs has one too with Heydude.
Before I close this out, there is one more thing for investors to consider. I mentioned the valuations for Nike stock and Crocs stock for a reason. Both companies will likely be profitable long term. But it's fair to believe growth will be modest. And this makes share repurchases a big part of the equation for shareholders.
In short, Crocs can repurchase more shares relative to Nike because its shares are cheaper. Assuming its impressive operating margin isn't a fluke, Crocs' management can more efficiently use profits to boost shareholder value with these buybacks.
The difference won't be felt over just a quarter or two. But over years, this can make a big difference. And all of these things contribute to me preference of Crocs stock over Nike stock today.
