Birkenstock Looks Like a Fit in Any Growth-Oriented Portfolio

Key Points

• BIRK stock continues to move higher after a double beat and increased guidance in the company’s earnings report issued on May 30. 
• While the two companies have widely different valuations, comparing Birkenstock with another iconic footwear retailer, Crocs, is not totally unfair.  
• BIRK stock may be fairly valued after the recent run-up, but investors should view any pullback as a buyable dip.  

Birkenstock Holding plc NYSE: BIRK delivered a stellar earnings report, and BIRK stock continues to soar as the broader market reprices equities in anticipation of higher-for-longer interest rates amidst persistent inflation.  

Neither seems to be an issue for the luxury footwear maker known for its iconic sandals. The company reported earnings per share of 44 cents on revenue of $522.51 million. Both numbers exceeded analysts' estimates, which were already lofty heading into earnings.  

Gross margin was down slightly. However, the company attributed that to its focus on expansion. If that's the case, then, as the company indicated, it should only be a minor blip for investors to consider. 

The company also increased its guidance for the remainder of 2024 based on expectations of solid growth in all three regions: the Americas, Europe, and Asia, as well as in both its business-to-business (B2B) and direct-to-consumer (DTC) channels.  

The Next Crocs?  

It's always tricky to say one company is "the next" something else. So, let's get the issue of valuation out of the way right now. Birkenstock trades at a forward P/E of around 44x. That's comparable with a company like Lululemon Athletica Inc. NASDAQ: LULU, which is well above the average of retail stocks. Crocs Inc. NASDAQ: CROX, on the other hand, trades at a far more attractive 12x forward earnings.  

Nevertheless, Birkenstock and Crocs have more in common than iconic footwear. For example, Birkenstock is a digitally native company that makes it attractive to millennials and Gen Z consumers. While not digitally native, per se, Crocs has leaned into digital and now does a significant business through its DTC channel. 

Both companies have posted stellar stock price growth in 2024. CROX outpaces BIRK, but it also has a longer history of earnings growth. Plus, while over 93% of Crocs shares are owned by institutions, only about 19% own Birkenstock shares. That's likely to change in coming years as analysts become more comfortable with price discovery for BIRK stock. 

At the present moment, analysts have a Moderate Buy rating on both stocks, and both are perceived as due for a pullback in their respective share prices. Both stocks also have a high amount of short interest. Crocs checks in at about 8.3%, while Birkenstock has over 15%. Once again, some of that can be attributable to the higher percentage of institutional ownership in CROX stock.

How High Can BIRK Stock Go? 

Strictly from a technical standpoint, BIRK stock looks fairly value now that it's up about 36% from its low on April 18, 2024. That's comparable to the 40% gain in the stock after its IPO compared to its initial sell-off in February.  

However, since the company's earnings report on May 30, the Birkenstock analyst ratings on MarketBeat show a number of analysts with price targets of 5% or higher than the current price. That list includes JPMorgan Chase & Co. NYSE: JPM, which confirmed its Overweight rating on the stock and increased its price target from $56 to $64.  

Birkenstock now carries the privilege of expectations. However, at a time when many retailers are looking to lower the bar, Birkenstock is raising it. It's not irrational to expect a pullback in BIRK stock, but that will be a buyable dip.