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.

Sometimes, stocks do 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 upwards.

But 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 might fit that bill. According to the smart folks at finviz.com, these companies' shares have more than doubled over the past year, and they just might be ripe to fall back to earth.

Company	Recent Price	CAPS Rating (out of 5):
Akamai (Nasdaq: AKAM  )	$45.72	*****
Deckers Outdoor (Nasdaq: DECK  )	$164.92	**
Crocs  (Nasdaq: CROX  )	$11.90	*

Companies are selected by screening for 100% and higher price appreciation over the last 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
According to the Commerce Department, consumer spending slid 1.2% in May. (Surprise!) In response, investors have gone out and … bought shoemakers, judging by two of the three candidates in today's list. Even at today's lofty prices, the stocks still have their fans.

According to All-Star investor silentrumble, "the market has been waiting for the UGG 'fad' to hit the wall for several years now." Apparently, it's been waiting in vain. "Deckers has done a tremendous job of expanding the UGG brand into footware outside of the winter boots category and even into UGG accessories," silentrumble continued. "At some point, UGG could become an international brand separate from the original sheep wool boots -- similar to how NIKE (NYSE: NKE  ) is light years away from being limited to a high-top basketball shoe company."

Similarly, Stockpickingguru argues that Crocs has also "Survived the FAD phase." Now that it's proved itself capable of earning profits, Crocs "now has a good growth period ahead."

Yet most investors seem to have their doubts. According to our CAPS community at large, neither Crocs nor Decker enjoys prospects justifying even a mediocre three-star rating. Fortunately, we've got one more stock to choose from -- and this one enjoys much stronger support.

The bull case for Akamai
Why buy Akamai? CAPS member MassLibertarian argues: "As need for quicker mobile browsing becomes more important to the everyday consumer, more and more companies will turn to Akamai to improve their mobile websites."

Blastman9 agrees: "Akamai's growth into the mobile market will propel this stock for many years to come."

Growth in mobile browsing isn't Akamai's only driving force, either. Randseed reminds us that the plain ol' Internet isn't going anywhere, either. "Companies are wanting to reduce costs and administration hassles by outsourcing. Akamai is in a fantastic position to do just that, and has no major competitor."

Now, that last bit may be going just a bit far. Randseed may not see anyone out there gunning for Akamai, but Rackspace (NYSE: RAX  ) , Digital River (Nasdaq: DRIV  ) , and Open Text (Nasdaq: OTEX  ) all say that they, at least, consider Akamai their rival. But let's leave that quibble aside for a moment, and focus on Akamai proper.

At least at first glance, this company appears wildly overpriced relative to its prospects. With a 57 P/E and a 14.5% projected growth rate, the math doesn't look good. On the plus side, the company sports a small net cash position on its balance sheet, and generates strong free cash flow to keep it that way -- enough cash, in fact, to drop the stock's price-to-free cash flow ratio down to about 24.

Don't get me wrong -- I agree that Akamai has a strong business going. But relative to the three rivals named above, Akamai also seems to be selling for a sizeable premium on an enterprise value-to-free cash flow-to-growth basis. Scratching out a few numbers on the back of a proverbial envelope, I see Open Text selling for about a 1.3 ratio, while Digital River and Rackspace score about a 1.2 EV/FCF/growth ratio. Akamai, however, fetches 1.6.

Time to chime in
Personally, I incline toward buying companies where the enterprise value divided by free cash flow is a number lower than the growth rate -- a rarity in the growth stock world that these companies inhabit. That's why I won't be buying any of them.

If you consider yourself a "growth investor," however, and you're inclined to roll the dice on "the next big thing" in hopes it outperforms expectations, I'd suggest that you least limit your risk. Buy one of the slightly less overvalued alternatives named above. Leave Akamai to the high-stakes gamblers. Sooner or later, they're going to lose, the stock price will drop, and that will be your chance to pounce.

That's my opinion, anyway. What do you think?