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It's no secret that I'm a fan of growth stocks. You'll find me spending most days studying and writing about tech's fast movers as a member of the Motley Fool Rule Breakers team.
That's why I can say this: Some growth stocks stink.
Psystar is a private company, but it illustrates the risks in some growth stocks. This company could be sued out of existence by Apple (Nasdaq: AAPL ) for creating unauthorized clones of its Macintosh computers.
But this is about more than bad luck or even poor decision-making. I question whether Psystar was ever anything more than an extravagant fantasy. Why? Computerworld reports that the company, in a pitch to venture capitalists, claimed it would sell as many as 12 million machines in 2011. For perspective, consider that Apple sold 10.4 million Macs in fiscal 2009.
Does this remind anyone else of growth-gone-wrong stories of overpromising and underdelivering? Stock stories such as Crocs (Nasdaq: CROX ) , Krispy Kreme (NYSE: KKD ) , and Vonage (NYSE: VG ) ? Sirius XM Radio (Nasdaq: SIRI ) was dancing on this same precipice not long ago, and may still be promising more than it can deliver.
Say goodbye to this one
So in the spirit of the growth stories that went bad before it, I hereby offer a eulogy to Psystar that it didn't ask for and may not need, because court proceedings aren't finished. I'm taking the risk anyway. Here are my top five semi-serious signs you're investing in a fantasy grower such as Psystar:
5. The CEO always keeps a dictionary of superlatives handy.
4. Profit is always just a year away. Or so says the fax you just received from the company's stock promoter.
3. The (ahem) "market opportunity" involves a moon landing, buried treasure, and more stock options than are listed on the Chicago Options Exchange.
2. Executives have spent more money on paper for press releases than they have research and development.
And the No. 1 sign you're investing in a fantasy grower (drum roll, please) ... Dogbert was just named the new CEO.
See any I missed? Sound off in the comments box below. And if you know of any obvious fantasy growers, visit Motley Fool CAPS and give 'em a thumbs-down. It's 100% free to participate.