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Sometimes you love a company's products and services, but would never invest a penny in the stock. That's exactly how I feel about Internet-based phone service provider Vonage (NYSE:VG). This stock will burn you in the end, as it has already destroyed many other portfolios.

Love the product, hate the stock
This dichotomy comes in two distinct flavors. Ridiculous share prices should keep you away from Research In Motion (NASDAQ:RIMM) and Apple (NASDAQ:AAPL), even if you love your BlackBerry or iPod. Stocks like these are priced for absolute perfection, and it doesn't take much of a stumble to send those prices tumbling toward more reasonable valuations.

The second camp is swiftly headed for bankruptcy and/or total annihilation. We all need to fly occasionally, but airlines file for Chapter 11 protection like Elizabeth Taylor files for divorce -- early and often. You could have seen Movie Gallery's demise from three Netflix (NASDAQ:NFLX) shipping centers away, even if you loved the chain's microwave popcorn. And so it goes.

The worst of both worlds
Vonage manages to straddle the fence between these extreme cases. The stock may live in penny-land, but you're still overpaying for what you get on any reasonable valuation basis. Since Vonage has negative earnings and EBITDA, certain ratios like P/E and enterprise value-to-EBITDA are useless.  If you want to factor in hypergrowth, let me point out that the company has hit a brick wall. In 2006, sales grew by 125%, giving Vonage an excuse for generous valuations. Last year? A paltry 36.4%.

The company has bled at least $230 million in negative free cash flow in each of the past three years, and $215 million in the past 12 months. That's a problem when you have only around $148 million in cash equivalents on the balance sheet. Will the next round of desperation financing come from secondary stock offerings, diluting whatever value is left in current owners' portfolios? Or will the company take on fresh debt in this economic climate of hesitant banks and low liquidity? The interest rates would be enormous, given Vonage's uninspiring cash flow history.

Where's the nearest fire hydrant?
I was a Vonage customer for several years, leaving only because Verizon (NYSE:VZ) gave me some very nice extras on its FiOS service if I signed up for the full triple-play package. Very clever, Verizon. Now I miss my Vonage connection and its unbeatable international calling plans at low, low prices. AT&T (NYSE:T) and Verizon can't hold a candle to Vonage's call rates.

But I'm not going back, not even if Vonage reimburses me for breaking my lifetime (OK, two-year) contract with the phone company. I'd hate to make the switch, then see Vonage go down in a firestorm of lawsuits, competition, stalled growth, and tsunamis of red ink. At least I can count on my current service to be there for the foreseeable future. That's also why you shouldn't buy Vonage stock.

The bottom (phone) line
If you bought Vonage stock at the IPO two years ago, you have my sincere condolences. Those shares are now worth about 11% of what you paid for them. Unfortunately, that's still more than what the business is worth. Verizon, Sprint Nextel (NYSE:S), and a few others may have settled their legal differences with Vonage, but the lawsuit pipeline is far from cleared. Lawsuits bring uncertainty, and given the operating model of selling services below cost, then making up for the shortfalls with big volume ... well, you see where that is leading.

I'll miss you when you're gone, Vonage. Head on over to Motley Fool CAPS and let us know whether you'll miss it, too -- a simple "thumbs-down" rating will do the trick.