In its third quarter (ended Sept. 30), Crocs (CROX -0.75%) saw revenue increase 57.4% year over year to $985.1 million, with adjusted diluted earnings per share up 20.2% to $2.97. That's outstanding growth and profitability during a time when the economic picture appears to be getting worse. 

This financial performance hasn't gone unnoticed by investors as they have bid up the shares to the tune of nearly 100% over the past six months. But even with the footwear stock soaring in recent months, it might be a good idea to look at Crocs as a company you still need to own in your portfolio. 

Consider the valuation 

After Crocs shares doubled in the past six months, the stock surprisingly only sells at a price-to-earnings (P/E) multiple of 10.5 right now. This valuation is substantially cheaper than the trailing-10-year average of 43. The attractive P/E might signal that the business is struggling today. 

This would be a flawed assumption. In fact, after registering a massive revenue jump in the latest quarter, the management team raised guidance for the current quarter, now expecting full-year revenue to be just under $3.5 billion, good for about a 50% year-over-year gain. 

Crocs' success can be at least partly attributed to the company's strong brand. High-profile collaborations with superstar entertainers like Bad Bunny and Justin Bieber, as well as a partnership with Spanish luxury house Balenciaga, have strengthened the Crocs image with consumers. The business has also relied heavily on digital marketing initiatives. 

Like its rivals, Crocs is facing some macro headwinds that are pressuring margins. Inflationary pressures and higher freight and inventory handling costs have lowered the gross margin from 63.9% to 54.9% in the latest quarter. Nonetheless, this profitability is still superb when compared to peers. 

You wouldn't know this by looking at the valuation, but Crocs has some huge expectations for its long-term growth. CEO Andrew Rees and his team believe that the Crocs brand can generate at least $5 billion in annual revenue in 2026, with adjusted operating profit of $1.3 billion. So the potential expansionary runway is absolutely huge. 

And this means that Crocs investors can get that rare combination of growth and value all in one stock. 

Consider the risks 

There are some key risks that investors should know, however. The first is simply the nature of the fashion industry. No matter how strong, brands have to constantly win over customers in order to remain relevant. Crocs has benefited from a pandemic-fueled boost in recent years because it relies primarily on a single product, the foam clog. But if this falls out of favor, the company's prospects will take a major blow. 

I'm also concerned about the size of Crocs' total addressable market. HeyDude added much-needed product diversity, but the company's footwear skews toward a younger demographic. According to Piper Sandler's fall 2022 Taking Stock With Teens survey, both Crocs and HeyDude were ranked fifth and seventh, respectively, among the Gen-Z demographic as their favorite shoe brands. 

This is a good audience to attract, as they have the potential to be lifelong customers. However, I also don't see many adults buying these products. 

Another risk that shareholders need to be aware of is Crocs' long-term borrowings of $2.6 billion. This is compared to cash and cash equivalents on the balance sheet of $143 million (as of Sept. 30). Acquiring HeyDude cost $2.5 billion, funded mainly with fresh debt. Based on where markets have gone since the deal closed in February, it looks like management severely overpaid.

Crocs probably thought that had they not jumped at the opportunity then, the deal would've been gone forever. The product diversity that Crocs gained from HeyDude might be worth it in the long run, however, as it adds a high-growth revenue source to the mix. 

Considering all the facts, it looks like Crocs' positive characteristics outweigh these risks I've just outlined. And you can't argue with that incredibly attractive valuation. While sales for the Crocs brand are decelerating, there is no sign that the company is falling out of favor with consumers just yet. Seeing revenue drop in any period would be a potential red flag.

Despite the shares' quick climb in the past six months, this stock might still be a good buy today.