No one has perfect foresight, but let's be honest: The market is full of people who, as Oscar Wilde would say, know "the price of everything and the value of nothing." Far too often -- over the past year especially -- investors have been pitched sensational stock recommendations only to be left high and dry as shares crumble.

To hunt down top-recommended stocks that have been rewarding investors accordingly, I summoned our Motley Fool CAPS community to point out a few four- or five-star stocks that have been shootin' for the moon in recent months.

While not formal buy recommendations, these three-month bloomers caught my attention:


13-Week Price

Recent Share

2009 EPS

CAPS Rating  
(out of 5 stars)






Dawson Geophysical










General Electric





Quality Systems





Data from Motley Fool CAPS, and Yahoo! Finance as of May 20.

You can rerun the CAPS screen I used by clicking here

Quality stock, questionable price
Earlier this week, my Foolish colleague Brian Orelli tagged Quality Systems as the one stock to sell now.

"Sure, the stimulus package had some money in it to encourage doctors and hospitals to go digital with medical records," he wrote, "but investors seem to be putting the cart before the horse with Quality Systems."

Great company. Great prospects. Grossly overvalued. That seems to be the common attitude toward Quality Systems these days. And despite an incredibly promising future, overvaluation can and will eclipse every ounce of a company's success. Amazon (NASDAQ:AMZN) circa 1999 ring a bell?

Let's break down the pros and cons of this budding company.

The good
Quality Systems is riding a long-term shift toward electronic documentation of medical records. Not only is this industry being fueled by the stimulus package Brian mentions, but this kind of company gains a unique moat thanks to high switching costs. Once a doctor or hospital decides to use its services, they're typically in for good -- it's like the roach motel of capitalism.

CAPS member jimcarhart recently discussed a few other bright points, writing:

Quality Systems is one of the companies which will allow health care providers to monitor and record electronically the information which for years has been "hand written", and occasionally indecipherable. Nurses, physicians, and insurance personnel will be able to easily and quickly access patient information using the software from Quality Systems. It's a "no brainer"!

If you're strictly looking at this company's business prospects, sure, a no-brainer it might be. This is one of a few, rare, industries in today's economy with what's close to surefire growth in the years ahead. In fact, on average, analysts expect business to grow at an 18.44% annual clip over the next five years.

The ugly
Problem is, investors have known this for a while, and the share price fully reflects its potential. With shares nearly doubling since late last year, investors are now looking at a stock trading at a nosebleed 28 times forward earnings estimates. Short of growth that completely blows estimates out of the water, that's the kind of valuation that's bound to disappoint investors in the years ahead.

Here's another way to look at it: Let's assume earnings double over the next two years, and the multiple comes back down to earth to, say, 20 times earnings. Even with these enormously generous assumptions, you'd get a stock worth about $65 a share. That's not stupendously higher than today's price, and it's certainly not the kind of reward investors should be overly giddy about in relation to risk.

Besides, this is a market so caked with fear that you can still buy high-quality, moat-protected companies like Google (NASDAQ:GOOG) at the lowest prices we've seen in years. With so many bargain opportunities, there's no reason to chase anything that appears to be, to say the least, fully valued.

Your turn to chime in
Have your own take on Quality Systems? More than 130,000 investors use CAPS to share ideas and swap opinions. Click here to check it out and speak your mind. It's 100% free to participate.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Google is a Motley Fool Rule Breakers recommendation. and Quality Systems are Motley Fool Stock Advisor selections. Garmin is a Motley Fool Global Gains recommendation. Dawson Geophysical is a Motley Fool Hidden Gems selection. The Fool has a disclosure policy