My outlook on Crocs (NASDAQ:CROX) quickly U-turned over the past year, as I watched its price climb to incredibly high valuations. Crocs fans poured ever more capital into the company, because it seemed like nothing could stop its rapidly appreciating stock.

To be honest (and perhaps to insulate myself from endless hate mail), I think it's only fair to disclose that I was once a raging bull for Crocs. Unfortunately, I didn't approach the company with a Foolish mentality.

When the company issued its IPO, I recommended the stock to friends, advising them that Crocs would be a one-hit wonder, and that purchasing the stock for a year would be a lucrative investment. So why have I taken the bear side of this argument?

Originally, my bullishness stemmed from my certainty that this kind of hot growth stock would attract greedy investors to bid up its price.

In one sense, I was right. Anyone who invested in the company from the beginning and held for one year would have doubled their money. Yet at the same time, I consider myself small-f foolish for suggesting that anyone purchase this company, since I don't think it holds long-term potential.

This watering hole is drying up
Hot growth stocks with popular brand names like Apple or Google are exciting. That is, until they hit a wall and run out of innovative ideas, causing consumers to lose interest in their products. In order to sustain the current growth rates that justify Crocs' price tag, the company must consistently design new shoes and apparel season after season, establishing itself as a true brand, rather than a fad. One fashion mishap could wreak havoc for its valuation.

During my tenure as the retail editor here at the Fool, I've witnessed a downturn in the shoe industry. Popular brands that once rewarded investors with profitable gains are now in a slump. Steve Madden (NASDAQ:SHOO), Skechers (NYSE:SKX), and K-Swiss (NASDAQ:KSWS) have all tumbled over the past year, down 43%, 31%, and 46% respectively. The fickle world of retail is tough. So many retailers just can't get fashion right over the long run; trends change, and the in style now won't be here for long.

This story has been played out before. Just when you thought Heelys (NASDAQ:HLYS) was the next best thing, its value dropped 80%. Yoga-gear maker lululemon athletica's (NASDAQ:LULU) steep upward post-IPO momentum was short-lived; it's shed 33% from its highs from earlier this year. The moment one of these companies begins to show the slightest sign of waning growth, investors quickly sell out. Current valuations become invalid, and the company's financials suddenly look a little less appealing.

Inventory to sales: Eat my dust!
Over the last 12 months, Crocs' revenue grew by 167%, while inventory piled up at a rate of 297%. Though management believes this excess inventory will help it meet next year's demand, I question whether the current levels of demand will last that long. Even if Crocs' fashion statement sticks around for a few more years, will customers continually purchase new models? Crocs fans claim that these shoes have a long lifetime, so I'm not sure why consumers would need to continuously purchase new shoes if their old ones aren't worn out. Additionally, schools across the country are banning Crocs, so I doubt parents will be willing to shell out $35 to $50 for a pair of shoes their kids can't even wear on a daily basis.

I'll admit that Crocs' year-over-year growth is still impressive, as you can see below. But keep in mind that it's been on a downward trend since last summer.

6/30/06

9/30/06

12/31/06

3/31/07

6/30/07

9/30/07

Total Revenue

328%

243%

227%

217%

192%

167%

CAPEX

155%

145%

107%

135%

191%

185%

Year-over-year growth. Source: Capital IQ, a division of Standard & Poor's.

Despite a slowdown in revenue growth, Crocs is aggressively expanding its business, opening company-owned stores and new distribution centers. Consequently, capital expenditures are rising more quickly than sales, indicating that management may be growing its operations more rapidly than current and future demand requires.

Some last longer than others, but all growth stories come to an end. Over the past year, Starbucks has proven to investors that even the biggest growth stories of the decade can't provide market-beating returns forever. The key to winning with these stocks lies in pinpointing exactly when the company begins to drift away from its growth stage. Crocs' 15 minutes of fame may still have some life to them in the near term. However, current operational trends suggest it won't be too long before this company calls it game over.

Related Foolishness:

You're not done with the Duel yet! Read the other entries, sound off in CAPS, and then vote for the winner! 

Fool retail editor Kristin Graham owns shares of Starbucks, a Motley Fool Stock Advisor pick. The Fool's disclosure policy prefers shoes without holes in them.