Rocket Stock or Dud?

"The bigger they are, the harder they fall." It's the worst nightmare of every investor in today's market -- buying a rocket stock just before it takes a nosedive.

Now I readily admit that sometimes, stocks rise for a reason. But sometimes, the rise becomes the reason. No matter how often we caution them not to, investors do have a habit of buying "hot" stocks, and trusting momentum to keep 'em moving up.

Problem is, if the price goes up too much, even a great company can turn into a lousy investment (and if the company was less than great in the first place ...). Below, I list a few stocks that may have done just this. Stocks that, according to the smart folks at finviz.com, have more than doubled over the past year, and just might be ripe to fall back to earth.

Companies are selected by screening for 100% and higher price appreciation over the past 12 months on finviz.com. Five stars = highest possible CAPS rating; one star = lowest. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

All the news that's fit to ignore
After putting together a seven-month-long string of non-stop growth, U.S. retail sales unexpectedly slammed on the brakes in May. According to a Commerce Department report released Friday, retail sales slid 1.2% last month.  (Surprise!) Not that you'd know it from how these three stocks have performed. Far from anticipating the slowdown, these retailers' remarkable gains seem predicated upon endless growth, with high-end retailers Harry Winston and Williams-Sonoma more than doubling over the past 52 weeks, and lululemon posting nearly a triple.

And because everybody loves a winner, there's no short supply of investors willing to sing their praises on CAPS. Describing lululemon as occupying "a niche between Under Armor (NYSE: UA) and Nike (NYSE: NKE), CAPS member ifool100 endorses it as a "Great young company with exceptional numbers ... Customer and employee oriented. No debt [and a] … US expansion in the works."

For its part, Williams-Sonoma may not be as young as lululemon, but youth isn't the only niche in the retail sea. CAPS member 1Ed1 writes that this one will do just fine because it's "a higher end retailer that doesn't have to compete with the mid stream retailers in the home goods market segment." But if it's high-end, niche products you're after, a lot of Fools think the best bet of all is five-star-rated Harry Winston Diamond.

The bull case for Harry Winston Diamond
Why might Harry Winston Diamond be a Fool's best friend? Opinions vary, and in fact, sometimes conflict. CAPS member holyemo thinks this is a simple case of a "play on an improving economic outlook - its been a while, perhaps some treats are in order." Conversely, dodfool argues that: "Gems are a store of value during tough economic times."

In either of which cases, Harry Winston fits the bill. Because as CAPS member Darren223 reminds us, a share of this company brings with it both "diamond mine ownership" (hard assets) and a "retail diamonds" operation. Plus a third, X-factor: Whatever happens with the U.S. economy, "China's diamond demand is growing as their average income and desire for high-end retail items increases."

A multifaceted company
So you can basically take your pick of reasons to buy Harry Winston Diamond. Buy it for its hard assets, in the form of the diamond mine (albeit part of this stake was sold to Kinross Gold (NYSE: KGC) in March). Buy it as a play on a revived U.S. consumer (if May's numbers don't frighten you away.) Or buy it for its relationship with Tiffany (NYSE: TIF), the global high-end diamond powerhouse (if they do).

It's really up to you.

Time to chime in
As for me, well, I won't be buying Harry Winston Diamond for any of these reasons, anytime soon. (My reason: Quite simply, the company still doesn't meet my criterion of free cash flow profitability. Free cash flow for the past 12 months appears to be running negative to the tune of $26 million -- better than the net losses the company is reporting.) But there's no reason you should necessarily value my opinion over those of the CAPS members described above. On Motley Fool CAPS, all investors are created equal -- until by their performance, they prove otherwise.

And now, here's your chance to shine on CAPS. Click over to the site and tell us whether you think Harry Winston Diamond will outperform or underperform the market. Up or down, now you can show the world that you know better than the rest of us.