Rocket Stock or Dud?

Sometimes, stocks rise for a reason. But other times, investors get mired in a momentum mind-set, and that rise becomes the reason. Sadly, even a great company can turn into a lousy investment if its price reaches too great an altitude -- and a shaky company can become an outright disaster.

Below, I list a few stocks that may have flown too close to the sun. According to the smart folks at finviz.com, these companies shares have nearly or entirely doubled over the past year, leaving them potentially poised to fall back to earth.

Companies are selected by screening for 100% and higher intraday 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.

Working in fields ranging from network optimization to diabetes treatment to communications equipment manufacturing, the companies in the chart currently represent some of the market's hottest stocks. Together, they've gained 350 percentage points in value over the past 12 months and outperformed the S&P 500 by more than 300%.

[Pause for applause.]
Each of these stocks has done well over the past year, but which one will do best for the rest of 2011?

CAPS member schmidtty9 sees Alcatel's "cubed cell phone mini tower technology" as being "superior to competitors" and likely to be "used for wifi" and other communications solutions, making Alcatel the communications stock of the future.

Fellow CAPS member yazzbro believes there's big potential in Depomed, which "just got approval" for one of its drugs and "is about to have word on approval for another." Says yazzbro: "The only thing holding this stock from going to $15-$20 a share is its contract dispute with [Abbott (NYSE: ABT)]. When that works itself out look for a nice rise in the stock price."

And yet, while both these stocks have their fans, neither one enjoys the broad-based CAPS support that flows to Riverbed.

The bull case for Riverbed Technology
The enthusiasm around Riverbed is of a peculiar bent. CAPS member StockDocStan points out that the stock is "not cheap, but getting less cheap! This new wave of technology has legs and RVBD is simply at the core of the new revolution." So maybe the high price is worth it?

EspressoMan88 thinks so, admitting: "I've missed out on this one with real money due to concerns about its high valuation. It still has a premium valuation, but given its market, impressive technology and growth, I'm betting that those are justified."

CAPS member LeifN agrees: "It is in the right sector … for growth."

And you know what? They're right. All of them. Riverbed does seem poised for hypergrowth, with nearly three dozen professional analysts agreeing the stock's likely to ramp its profits up 28% per year over the next five years. Also, as our CAPS members point out, Riverbed costs an awful, awful lot: 160 times earnings, in fact. But is the company's growth fast enough to justify the price?

Riverbed fans are going to hate me for saying this, but my answer has to be: No way. No how. 160 times earnings is on-its-face too much to pay for 28% earnings growth.

Indeed, even when viewed under the more forgiving rubric of price-to-free cash flow, Riverbed's $108 million annual stream of free cash flow is too feeble a trickle to move this stock's boulder of a market cap. The stock sells for 49 times free cash flow -- far more expensive than rivals such as F5 (Nasdaq: FFIV) or Juniper Networks (Nasdaq: JNPR), and nearly five times the valuation at Cisco (Nasdaq: CSCO). Even if Riverbed is growing faster than its rivals (and it is, even if only just barely faster than F5), I simply don't see how an investor buying at today's price can profit from the investment.

Time to chime in
Of course, that's just my opinion. There's no law that says you have to agree. In fact, I'd actually prefer you do not agree. Instead, take a few moments to visit Motley Fool CAPS and give us your read on Riverbed. Because here at the Fool, it's always -- "the more opinions, the merrier."