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.

Now I readily admit that sometimes, stocks 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.

Problem is, if the price goes up too much, even a great company can turn into a lousy investment. Below I list a few stocks that may have done just that. Stocks that, according to the smart folks at finviz.com, have more than doubled since the beginning of this year, and just might be ripe to fall back to earth.

Companies are selected by screening for 100% and higher price appreciation year-to-date on finviz.com. Five stars = highest possible CAPS rating; one star = lowest. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Each of these stocks has posted huge gains this year, but as we scan the stars (or at least, the star ratings) on these five stocks, it seems our 145,000 lay stock analysts on CAPS have begun to lose faith that the rally can continue.

So is now the time to collect our winnings and go home? Or is the return of investor pessimism a signal that now's really the best time to buy? In one case, CAPS members think the latter. Let's find out why as we review ...

The bull case for Teradata 
Those who know this company at all know that it's a leader in data warehousing and analytics -- and a Motley Fool Stock Advisor recommendation. It's also a favorite among some of CAPS' very best investors:

• stew0250, for example, who noted last summer how: "More and more companies are getting on board with data tracking and trend analysis of their consumers. Lets face it, we are becoming EXTREMELY dependent on data in home, business, and entertainment. Only one way for this stock to go long term."
• Fellow All-Star Kiawef argues that Teradata's a buy because: "Cloud computing is the wave of the future." (And as fellow Fool Tim Beyers recently argued, everyone from EMC (NYSE:EMC) to IBM (NYSE:IBM) to Amazon.com (NASDAQ:AMZN) itself is betting on this trend.)
• Last but not least, All-Star investor Learned gave us a lesson in value investing back in May, citing the firm's: "Recent alliance with SAP ... strong cash, with minimal debt" as three good reasons to buy.

By declining to Sell in May and Go Away, Learned has beaten the S&P 500 by nearly 20 percentage points in CAPS on Teradata. But now that the easy money has been made, investors can be foregiven for wondering whether this rocket stock has run out of gas, and must now fall back to earth. After all, Teradata's selling for a 21 P/E today, and with five-year-growth prospects pegged at just 10%, the shares are starting to look right pricey ... at first glance.

Yet the P/E doesn't tell you everything you need to know about this stock. Look a little deeper, and you'll see that Teradata generates free cash flow more than 80% higher than that "E" would suggest. With $458 million in free cash flow generated over the past year, more than $700 million worth of cash in the bank, and no debt whatsoever, it might be more accurate to say that ...

Foolish takeaway
"Teradata sells for less than ten times its enterprise value. With growth projected at 10%, and the company's history of thoroughly thumping such estimates in each of the last four quarters, this company is primed to rocket higher."

There, I've said it. Now it's your turn to tell me why I'm wrong. Got reservations about Teradata? We've got a place to make your case.

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