I'm sure most readers have seen a pair of Crocs' (CROX -1.80%) recognizable foam clogs in their daily lives. While I'm personally not a huge fan of them, they have helped catapult the business back to relevance in a major way. 

Shareholders are certainly familiar with the positive characteristics of Crocs, especially its growth and profitability. But what about the other side of the equation? Let's take a closer look at the risks with this popular footwear brand.

Pay attention to Crocs' negative attributes 

The coronavirus pandemic boosted Crocs' fortunes as sales climbed 13% in 2020 and 67% in 2021 as people stuck at home sought out comfortable and casual footwear. And the stock followed, rising 206% between the start of 2020 and the end of 2021. 

But 2022 was a slightly different story. Through the first nine months of the year, the company's overall revenue was up 51% year over year. The caveat, though, is that this included numbers from the HeyDude acquisition. If we exclude this data, the core Crocs brand saw sales increase in the mid-to-high digits in the first three quarters of 2022 compared to the same period in 2021.

And for the full year, management expects revenue from the Crocs brand to come in at just over $2.6 billion, good for a 17% year-over-year rise. That's a dramatic slowdown that might foreshadow a new normal for Crocs going forward.  

Additionally, while the global footwear market is valued at $382 billion, according to data provided by Statista, Crocs' addressable market might be far more limited. During the third quarter, the business generated more than half of total company sales from just one product: its flagship foam clog. These are popular, but they can be customized with Jibbitz charms, thus reducing the need for customers to own multiple pairs. Plus, they can last for a very long time. 

A loyal fan of Nike or Adidas, on the other hand, could buy hundreds of pairs of sneakers from their favorite company in their lifetime. I don't think the same can be said about Crocs. Nike and Adidas focus on and invest in product innovation and research and development to constantly introduce newer and better shoes. That's what drives demand. 

To be fair, Crocs does sell other footwear products, like boots, sandals, and sneakers, but this places the company in direct competition with a number of other brands out there. And these other items don't showcase Crocs' true differentiation, which is the famous foam clog. 

The last key risk that Crocs shareholders should know about is the company's unfavorable financial position. As of Sept. 30, Crocs had $143 million in cash and cash equivalents on its balance sheet. However, it also had a whopping $2.6 billion of long-term debt, largely due to a $2 billion term loan that was raised to complete the purchase of HeyDude in December 2021.

A valid argument could be made that Crocs' management team, led by CEO Andrew Rees, severely overpaid for the acquisition because it was made when market valuations were much higher than they are now. 

Decelerating growth at the main Crocs brand, a suppressed addressable market, and a debt-laden balance sheet are all critical factors that any shareholder must know about this business. 

The valuation still looks compelling 

Even after considering the risks, investors might find the stock attractive right now. Although shares are down about 29% from their all-time high set in November 2021, they are up a jaw-dropping 136% over the past six months.

Despite this huge price run-up, the stock only trades at a price-to-earnings (P/E) ratio of 14 today. That's cheaper than industry heavyweights Nike (P/E of 36) and Adidas (P/E of 21). 

For investors on the sidelines who are considering buying the stock, Crocs' compelling valuation might make up for the three risks I've outlined.