Lately, the overall mood on the Street has been quite optimistic, with the bulls overrunning the market's bears. And what's not to be excited about? The economy looks to be back on track, and corporate profits are up; in fact, profit margins are near their all-time high.

But according to Business Insider's Henry Blodget, those numbers may be deceiving. So while investors may be seeing meaty profits today, they'll likely look a lot leaner in a few years time.

His rationale? The past 60 years have only seen a handful of occasions where margins approached these astronomical heights. And in each instance, they reverted right back to the mean, dragging stock prices down in the process.

Here's why: Contracting corporate margins slow down profit growth relative to revenue. And when this happens, price to earnings multiples, or P/E ratios, are usually dragged down along with them -- meaning a decline in their stock's valuation.

Commodity prices, taxes and labor costs are all on the up; and there's a very real possibility of economic slowdown, which would force companies to slash their prices to remain competitive. Which means there's good reason to believe that profit margins are about to change direction.

And with the real GDPs annual growth rate forecasted at only 3%-4% earnings growth over the next decade, it would still be lower than normal even if profit margins maintain today's levels. Smaller margins would only exacerbate the effect.

The only way you'd see strong market returns in the coming years would be if P/E ratios resisted downward pressure -- but Blodget's not convinced they'll be able to. (Click here to access free, interactive tools to analyze these ideas.)

Here's a list of nine historically profitable stocks with high valuations ratios. Are these stocks about to run out of steam? You be the judge ...

Company

Price Divided by EPS Over the Last 12 Months

EPS Growth Past 5 Years

Sales Growth Past 5 Years

Home Inns & Hotels Management (Nasdaq: HMIN)

31.76

73.75%

93.12%

Epoch Investment Partners (Nasdaq: EPHC)

31.11

57.74%

65.43%

Intuitive Surgical (Nasdaq: ISRG)

30.96

54.62%

49.95%

Celgene (Nasdaq: CELG)

28.71

61.22%

48.10%

Cognizant Technology Solutions (Nasdaq: CTSH)

32.07

38.26%

41.08%

Encore Energy Partners  (NYSE: ENP)

28.78

47.59%

62.62%

Discovery Communications (Nasdaq: DISCA)

30.93

40.59%

40.99%

Bucyrus International (Nasdaq: BUCY)

26.6

101.01%

42.32%

Vistaprint (Nasdaq: VPRT)

30.52

37.21%

49.11%

Interactive Chart: Press Play to compare monthly and annual returns for all the stocks mentioned above.


Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.

Intuitive Surgical and Vistaprint V. are Motley Fool Rule Breakers picks. The Fool owns shares of Vistaprint V.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.