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 (and if the company was less than great in the first place...) Below I list a few stocks that may have done just this. Stocks that, according to the smart folks at finviz.com, have more than doubled over the past year, and just might be ripe to fall back to earth.

Companies are selected by screening for 100% and higher price appreciation over the last 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.

"These are a few of our favorite things ..."
Mining machinery, cloud computing, and wicker furniture -- three very disparate areas of the stock market populate this week's list, but all have one thing in common: Investors are eating these stocks up.

As far back as March, CAPS member ablengata was noticing the revival at Pier 1, pointing to "good" earnings and arguing "the company has done a great job at turning around at the brink of bankruptcy." The stock hasn't been too shabby either, tripling in price over the course of the past 12 months.

salesforce hasn't done quite that well -- but it's still more than doubled, and CAPS member judyblueyes sees more gains in store for shareholders as the "Chatter networking [continues] to infiltrate the business minded 'social networking' arena."

In the meantime, in between time, Bucyrus has racked up performance better than salesforce (if still far short of the tidal wave of buying at Pier 1). But the 110% gains it's garnered over the past year may be only the beginning. The merger and acquisitions talk surrounding PotashCorp (NYSE: POT) is hitting fever pitch, as would-be acquirers BHP Billiton (NYSE: BHP), Vale (Nasdaq: VALE), and Rio Tinto (NYSE: RTP) jockey for position. Presumably, these companies aren't looking to acquire the ability to mine potash and then not sit on their laurels. If they want to get the fertilizer out of the ground, it stands to reason they'll be buying mining equipment to get the job done -- the kind of equipment Bucyrus sells. Could it be there's still time to dig into Bucyrus?

The bull case for Bucyrus International
All-Star investor gspgundog thinks so, arguing that: "As long as the global economy continues to demand more and more resources this is a good play. One also must remember these types of companies make huge profits from their aftermarket, spares and wear items, usually more profit than from initial capital cost equipment purchases."

Fellow All-Star DarthMaul09 agrees, pointing out that coal and potash aren't the only things Bucyrus helps dig out of the dirt: "BUCY followed the industrial miners like SCCO lower while the gold miners generally went up. Since both miner groups are making money, BUCY should remain profitable through the third quarter."

Of course, we hope the company can do a bit better than just one more quarter of profitability. Fortunately, CAPS member BJames40 doesn't think that should be a problem, what with the company's "great balance sheet and fundamentals."

Speaking of which ... just what are those fundamentals?

Digging for value
Funny you should ask. Because at first glance, the numbers at Bucyrus really don't look all that attractive. Selling for nearly 19 times earnings, but with long-term growth projections of less than 15%, Bucyrus doesn't look like a great value right off the bat. Add a hefty $1.5 billion debt load and miniscule dividend payout to the mix, and it's hard to see why investors would be interested in Bucyrus at all.

That is, until you dig deeper. It's then that you see the company is actually quite a bit more profitable than it lets on. While GAAP "net earnings" amount to only $282 million, Bucyrus has in fact generated more than $336 million in free cash flow over the past 12 months, reducing its price-to-free cash flow ratio to a much more palatable 16.1.

Foolish takeaway
Personally, I'd prefer to see the stock get just a skosh cheaper before buying it myself. Between the debt overhang and the de minimis dividend, I don't really see a big margin of safety at today's price, but as the comments up above demonstrate, Foolish minds can differ on this point.

So, what's your opinion? Is Bucyrus a buy, or are we better off leaving this one alone for the time being? Click over to Motley Fool CAPS now, and tell us what you think.

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