The Federal Reserve’s intention to raise interest rates throughout 2022 to curb soaring inflation is spooking investors. And companies that continue to perform very well have been unduly punished over the past two months by general stock market weakness.

Crocodile (NASDAQ: CROX), whose shares have fallen 52% this year and 66% from their peak, is a prime example of the disconnect between investor sentiment and corporate fundamentals that is happening in the market right now. And investors should pay close attention to this incredible buying opportunity.

Here’s why Crocs is a convincing investment at present.

Crocs fundamentals look solid

The maker of seemingly ubiquitous foam slip-ons, Crocs has been a surprising beneficiary of the coronavirus pandemic. With more time at home than ever before, people were looking for comfortable and shoe options. It would be understandable to assume that this surge in demand was a one-time event and that Crocs’ business will return to slower levels of growth in the future. But so far this has not been the case.

In the most recent quarter (ended March 31), revenue jumped 43.5% year over year. And that compared to a 63.6% increase in sales in the first quarter of 2021. The momentum is clearly still strong, partly attributed to the growing strength of the Crocs brand. Piper Sandlerfrom spring 2022 Checking in with teens A survey found Crocs to be the sixth most popular shoe brand among Gen Zers, up from eighth last year.

I’m sure many skeptical investors primarily struggle with the question of how relevant Crocs can remain in an ultra-competitive industry. But having a powerful and growing brand, bolstered by smart partnerships and collaborations with celebrities, luxury fashion houses and other artists, while at the same time leveraging digital marketing channels, works. certainly a lot.

The success of Crocs is exemplified by its wonderful financial profile. During the last quarter, the company posted a superb gross margin by 49.2%, which was higher than that of industry heavyweights Nike. Additionally, Crocs is a cash cow, producing free movement of capital (FCF) of more than $500 million in 2021.

Image source: Getty Images.

Management is so confident in the company’s prospects that it has raised its full-year guidance, expecting revenue to now grow between 52% and 55% year-over-year. ‘other. And by 2026, the management team forecasts that total sales, including the recent acquisition of Italian casual shoe maker HeyDude, will reach $6 billion. At that scale, annual FCF generation could exceed $1 billion, or 26% of the company’s total $3.8 billion market capitalization today!

It’s not hard to realize that Crocs is a company going full steam ahead right now, despite skyrocketing inflation and the ongoing supply chain challenges that plague most other companies in the global economy.

Crocs is selling at a great price

In addition to unquestionably strong fundamentals, characterized by solid growth prospects and excellent financials, Crocs shares are ridiculously cheap. Since June 2, the shares have been trading for a price/earnings ratio (P/E) of just 5.5. This compares favorably to S&P500‘s P/E of 21 and a direct rival like Skecherswhich trades at a P/E multiple of 8.5.

I’m not sure why Crocs is selling at such a huge discount to the rest of the market. My best guess is that investors aren’t comfortable with the company’s long-term prospects, especially as they relate to the fashion industry. Consumers have finicky tastes and Crocs could turn out to be a fad that will eventually become a thing of the past.

Even with a stock price that has fallen 52% in 2022, Crocs has rewarded shareholders, as the stock has soared nearly 800% over the past five years. An attractive valuation coupled with a favorable outlook means now may be a good time to invest.

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Nike. The Motley Fool recommends Crocs and Skechers. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.