"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.

Every day, finviz.com publishes a list of stocks whose shares have just hit new 52-week highs. Every day, investors read the list and tremble -- some with greed, others with terror. Within our Motley Fool CAPS investing community, these top stocks generally enjoy favorable ratings, since everyone loves a winner... but not always:



52-Week Low

Recent Price

CAPS Rating
(out of 5)

Corning (NYSE: GLW) $15.45 $23.37 *****
Pfizer (NYSE: PFE) $14.00 $19.30 ****
Qualcomm (Nasdaq: QCOM) $31.63 $55.23 ****
Williams Companies (NYSE: WMB) $17.53 $27.46 ****
Green Mountain Coffee (Nasdaq: GMCR) $21.83 $39.61 *

Companies selected by screening for new 52-week highs hit on the Thursday before publication. Low and recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Whenever a stock hits new 52-week highs, investors naturally wonder when the law of gravity will start to affect it. This week, however, CAPS members seem unworried by the valuations of the most of the stocks on our list. Are they right to be so complacent?

It seems investors are placing a lot of faith on these companies' forward earnings. If you assume that Corning will achieve the 11% long-term growth it forecasts, the company's price doesn't seem unreasonable at 11 times next year's earnings.

Pfizer, at an 8.5 multiple, may look pricey in light of forecasts for only 3% long-term growth. But add in the 4.2% dividend yield, and maybe the stock's not so expensive after all. Qualcomm and Williams? True, they have lofty forward P/E ratios (17 and 22 times earnings, respectively). But if the companies grow at 17% or thereabouts, as projected, their valuations might not be quite so out of whack.

But then there's Green Mountain, trading at 68 times trailing earnings and 23 times expectations for the coming year. Unlike its companions on today's list, investors aren't buying this stock's growth story. Where other stocks receive bullish four- and five-star endorsements on CAPS, Green Mountain carries just a single, solitary star.

The bear case against Green Mountain Coffee Roasters
Valuation has something to do with it. Asked why he doesn't like the stock, All-Star investor Matt8265 recently replied: "Are you nuts? .... look at the PE." Meanwhile, nuf2bdangrus predicted that a "correction is due."

But valuation isn't the only concern here. CAPS member one1iron warns that: "the companies patents on the single drink packet are expiring in 2012 and they are already receiving heavy competetion from other more prominent suppliers such as Starbucks (Nasdaq: SBUX) and Kraft (NYSE: KFT)."

Elsewhere, Gonzhouse derides Green Mountain as a "serial acquirer," with "margins deteriorating. When the music stops, they won't have a chair to sit on."

Red hot stock, or burnt coffee?
Despite all the naysaying, Green Mountain did just come out with an earnings beat, a boast of 67% quarterly sales growth, and more optimistic promises for the future. So who's right here, folks: Green Mountain's critics, or the company itself?

If you ask me, they're both right. On the one hand, like other stocks on this week's list, Green Mountain may well keep growing in the future. On the other hand, it may be priced too high for even that growth. Reviewing Green Mountain's earnings last week, fellow Fool Alyce Lomax lamented that "Green Mountain's historically acquisitive nature makes its financial statements very complicated reading."

To simplify your research, just consider whether Green Mountain is successfully selling stuff and collecting money for those sales. Over the past 12 months, the company reported $72 million in "profits" -- but only collected $21 million in cash flow. After deducting $142 million spent on necessary capital investments, Green Mountain ended up burning more than $120 million for the year. At least at first glance, that seems like an excellent reason to avoid the stock.

In order to keep its revenue and (illusory) profits growing, Green Mountain also had to spend $1.2 billion buying new businesses, adding their revenue and (still illusory) profits to its own. That's 10 times the amount of Green Mountain's already negative free cash flow, by the way.

Time to chime in
But hey, that's just my opinion. If you'd like to offset the tally with reasons why Green Mountain deserves its stock price, and will continue to outperform -- then here's your chance. Click over to Motley Fool CAPS now, and sound off.