"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 upward.

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 doubled (or nearly so) over the past year, and just might be ripe to fall back to earth.



Recent Price

CAPS Rating

(out of 5)

Skyworks Solutions (Nasdaq: SWKS) $30.24 ****
VMware (NYSE: VMW) $94.79 ***
Avanir Pharmaceuticals (Nasdaq: AVNR) $4.26 **         

Companies are selected by screening for 100% and higher intraday price appreciation over the last 12 months on finviz.com. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Question: What does treating neurological disorders have to do with cloud computing? What do either of these things have in common with the wave of tablet computers sweeping the nation? The answer to both questions: The companies behind these products are some of the hottest stocks on the Street.

Over the past year, investors in Nuedexta neurological-drug maker Avanir have thrilled to a startling 126% run-up in the value of their shares. VMware shareholders are sitting atop a similarly sparkling 109% profit -- and one that's done nothing but good things for parent company EMC (NYSE: EMC). In contrast, Skyworks solution looks positively modest when offering its mere doubling in stock price.

And yet, if you ask CAPS members, the relative attraction of these three stocks is actually the inverse of their relative performance, as the best performer (Avanir) gets only two CAPS stars to recommend it, VMware is liked a little bit more, and Skyworks tops the list with a strong four-star performance -- and I have to say that I second that emotion. While Skyworks isn't exactly a cheap stock, at 40 times earnings it's a heckuva lot less expensive than VMware's triple-digit price-to-earnings ratio and infinitely cheaper than the P/E-less Avanir. But is the simple fact of a smaller price tag reason enough to prefer Skyworks?

Perhaps not. Fortunately, though, CAPS members see a whole lot more to like in Skyworks than just the stock price.

The bull case for Skyworks
As CAPS member GearCat pointed out back in July, Skyworks is a key "supplier of components for the iphone which has been sold out everywhere!" But not just the iPhone. According to ccorhei, Skyworks components can also be found in the many, many Android-based phones competing with the iPhone for prominence. Indeed, if you run through the list of companies that depend on Skyworks' products, it's harder to find a smartphone player that does not patronize Skyworks, than one that does; Apple, LG, Motorola (NYSE: MSI), Research In Motion (Nasdaq: RIMM) -- "it's in there."

And WSMOOT19 sees no end to this trend because: "smart phones are the wave of the future."

Consensus builds
Nor is it just us poor, benighted individual investors saying this. I recently had the opportunity to talk smartphone trends with Steven Buhaly, CFO for Skyworks competitor TriQuint Semiconductor (Nasdaq: TQNT), and he had only nice things to say about this rival, praising Skyworks for delivering "consistent and reliable" performance for its investors. According to Buhaly, we're only a few years away from the time when most cell phones out there on the market are "smart" cell phones, the kinds of handsets that most heavily utilize the kinds of electronic components that TriQuint and Skyworks manufacture. (Oh, and incidentally, once that happens, TriQuint promises to respond in spades to my request for more free cash flow from its business.)

As for Skyworks, it's already generating pretty strong free cash flow -- about 98% of reported net earnings. Problem is, and very similar to the case when I reviewed TriQuint last month, I'm still not convinced there's enough cash coming out to justify the stock's valuation today.

Consider: Even with $134 million generated over the past 12 months, Skyworks currently carries a market cap of 40 times that sum -- despite consensus estimates that its earnings will grow at only about 15% per year over the next five years. While it's entirely possible Skyworks will grow these numbers in future years, I'd argue that much of this growth is already factored into the stock price today ... years before it becomes a certainty.

Foolish final thought
Buying with one eye on the future is an admirable trait in an investor, and I can't fault the folks who bought Skyworks a year ago. They're sitting on a clean double today as reward for their foresight. But now that the stock has doubled, I find it exceedingly difficult to justify buying the stock at the current valuation. Seems to me Skyworks' business may be rocking and rolling, but as for the stock? It's more likely a dud than a rocket from this time forward.

Disagree? Hey, it's a free country. If you think I've got it all wrong about Skyworks, here's your chance to set me straight. Click over to Motley Fool CAPS today, and tell me why I'm wrong.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.