"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.

Company

 

Recent Price

CAPS Rating

(out of 5)

Silicon Image (Nasdaq: SIMG)

$4.93

****

Las Vegas Sands (NYSE: LVS)

$35.19

**

Sirius XM Radio (Nasdaq: SIRI)

$1.24

**

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

Question: What do pay-for-service radio, legalized gambling, and semiconductor stocks have in common?

Answer: The companies behind these products and services are some of the hottest stocks on Wall Street -- and maybe for good reason. As Sirius-backer CAPS investor gpiazzolla recently wrote: "the fact this business has survived these tough times is a reason to be optimistic... free cash flow is beginning to flow into and create value for long term shareholders." And with the arrival of honest-to-goodness cash profitability has come a doubling in market cap for the stock.

The boom and bust economy also promises good things for Las Vegas Sands -- at least, according to CAPS All-Star 1963spencer -- who predicts that "as the economy continues to improve, las vegas will continue to gain. LVS is spread out in emerging markets overseas as well. 2 year target 110.00/share."

Of course, neither two-star-rated Sirius nor two-star-rated Las Vegas Sands have earned a profit under GAAP accounting standards over the past year (but they each have over the past few quarters). Four-star-rated Silicon Image turned a profit for the last quarter, but is losing on the past 12 months. So why is it that the first stock on our list enjoys a CAPS rating twice as good as its companions? Let's find out, as we dig into...

The bull case for Silicon Image
CAPS member Prodders sees big things in Silicon Image's "Nifty 3-D MDMI tech for flatscreens. I'm not a big buyer of the whole 3-D fad, but I think enough people will be to provide enough demand for this."

In particular, CAPS investor dcollins5 tells us that "Samsung is a dominate force in the home entertainment industry. Since [Silicon Image's] components are now included in Samsung's product lines, [Silicon Image] will experience consistant growth and profit."

And then there's the argument that really appeals to the value investor in me -- the stock's cheapness. As CAPS member ptaussig points out, Silicon Image's stock is "trading @ 2x Cash with revenues and margins recovering."

Margins watch
That's true. After slipping steadily for years, then plunging off the cliff to crash at single-digit levels last year, Silicon Image's gross margin climbed back into the double digits late last year, and the company has now put together three quarters in a row of double-digit gross margins. The company still isn't anywhere near the 40+, 50+, and 60+ gross margin levels at silicon sultans AMD (NYSE: AMD),Texas Instruments (NYSE: TXN), and Intel (Nasdaq: INTC). But it's starting to close the gap with STMicroelectronics (NYSE: STM), a company with which it used to compete head-to-head for gross margin profitability, posting a respectable 28% gross last quarter, compared with STMicro's 38%.

Importantly, Silicon Image is also once again generating free cash flow. Not a lot, mind you -- less than $7 million over the past 12 months -- but enough that the company's no longer burning through its cash reserves, which currently back up 45% of its market cap.

Time to chime in
Call me a crazy optimist, call me a Fool, but I believe Silicon Image has reached and surpassed its inflection point. The company's back on a path to generate sustainable free cash flow for its shareholders. Whether the stock's run-up was in anticipation of this event, however, or whether now's the time for investors to recognize the event, fueling an even steeper ascent in Silicon Image's stock price, is anybody's guess.

So... what do you think? Has Silicon Image's rocket run out of gas, or will the stock climb higher? Tell us on Motley Fool CAPS.

The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 593 out of more than 170,000 members. Intel is a Motley Fool Inside Value recommendation. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Intel and Texas Instruments. The Fool has a disclosure policy.