2d • General discussion
$54 million dollar bet on Crocs
Disclaimer: This information is not intended to be and does not constitute investment or financial advice. You should not make any decision based on the information presented without conducting independent due diligence.
Li Lu is a value investor who's known for being the only person ever to manage money for Charlie Munger's personal accounts. Li Lu investment philosophy is full of wisdom but boils down to two simple points.
- Stocks are more than piece of paper, they’re ownership in the underlying business, so you must buy businesses with superior competitive advantages, in other words, deep moats.
- You must demand a margin of safety, meaning you have to buy when the market has significantly mis-priced the asset. Intrinsic value > market cap.
Li Lu's most recent 13F shows a new position in CROX, the rubber-shoe clog company. $CROX has become one of my largest holdings and highest conviction ideas in the portfolio. Simply put the thesis is as follows.
The company is valued around $4 billion dollars and could generate $800 million in cash annually - give or take depending on the year. In 5 years time, you get your money back. But I think it could be even faster. CROX generally allocates its cash as follows, 10% to CAPEX, 20% to paying down debt, and the remaining 70% ($550-600 million) to buying back shares in their own company. This mean every year, the pie gets smaller and smaller - the individual share becomes a greater portion of ownership i.e. entitlement to future cashflows. All else equal, 6-5x/FCF quickly goes to 4, then 3... you get the idea.
I believe Crocs has a deep moat. Its product is extremely versatile and comfortable, worn by healthcare workers to school-kids to celebrity endorsers. Crocs have built a brand/creator marketing machine. They partner with strategic brands and creators to launch unique collectables that audiences love. This is a constant relevance booster for the clog. For example, Crocs helped the Twilight franchise (a 25 year old meme fantasy world) monetize their IP and create a viral campaign by launching team Jacob vs team Edward clogs. Fans loved it, and TikTok post verify the demand as comment logs are full of request to bring back the Twilight Crocs. Crocs are the #1 selling brand on TikTok Shop. Brand sales, although pulling back in North America, are growing in the low teens abroad with key markets in Asia and Europe. The WSJ has a great video on why Chinese Gen Z love Crocs.
I believe the shoes are relevant today and will be for decades given their effective partnerships and meme-worthy clog strategy that can always be revamped with a new skin or collab.
The company is expanding into adjacents like sandals which are also a rubber based, high margin shoe. The company trades at some of the lowest valuation multiples of its sector, essentially left for dead or pricing-in zero to negative growth. This is not investment advice -- I just believe CROX is a great company with a future and the market has taken the opposite stance.
My name is Robbie, I'm new to Skool. I would love to get your thoughts on the company and product, please follow along for more updates on CROX and other investment ideas and insights I have along the way.
Treadstone, out.
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$54 million dollar bet on Crocs