At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

There's "best," there's "worst," and then there's Raymond James
Of course, none of that helps us much with an analyst like Raymond James. Once upon a time, RJ was one of the best-performing stock pickers on CAPS, amassing an amazing record of 63% accuracy on its public stock picks over a three-year run from 2007 to 2010. Unfortunately, the analyst has since gone dark. It's stopped publishing its advice; ceased providing data on its stock picks to ratings aggregator

This is particularly frustrating for Motley Fool Rule Breakers members, as RJ yesterday issued a below-the-radar recommendation to sell Rule Breakers  recommendation Acme Packet (Nasdaq: APKT), and we haven't a clue why.

Say it ain't so, RJ!
Oh, we can speculate. There was a report out yesterday detailing $4 million worth of stock sales by Acme CEO Andrew Ory. There was the fact that even as the selling was happening, Acme was holding forth at a Barclays investor conference about how great business is going, and how it feels confident of achieving "gross margins in the low 80s" this year.

Neither of these facts really has me worried. Fact is, Acme Packet has been throwing up 80%-plus gross margins for more than two years now, trouncing much lower margins at rivals Cisco (Nasdaq: CSCO) and Juniper (NYSE: JNPR). And while $4 million sounds like a lot of money to you and me, to Ory it's basically pocket change. The man still owns nearly 4.2 million shares of Acme stock. The recent sale amounts to just 50,000 shares -- about 1.2% of his stake in the company.

But that doesn't mean I disagree with Raymond James.

Valuation matters
What does worry me about Acme Packet is -- say it with me now : "The price!"

I'll grant you that Acme's business is going great guns, with sales up 45% in the most recent quarter. That's eight percentage points better than JDS Uniphase (Nasdaq: JDSU) can boast, three times as good as Alcatel-Lucent's (NYSE: ALU) sales gains, and 2.5 times the growth rate at Ericsson (Nasdaq: ERIC). In fact, Acme is growing roughly three times as fast as the "average" company in the communications equipment industry. The problem is, such growth cannot last forever, but Acme Packet's shares are priced as if it certainly will.

Consider: While analysts on Wall Street are expecting 22% annual earnings growth at the company (and have hit surprisingly close to the mark in each of the past four quarters' estimates), the company's stock is priced at a level more appropriate for a stock growing four or five times as fast, at around 100 times trailing earnings.

From a cash flow perspective, Acme's even more richly priced. Free cash flow for the past four quarters totals $43.5 million, or about 10% behind reported "net income" under GAAP. Relative to its free cash production, the stock's valuation stretches even further, to a ratio of 112.

Foolish takeaway
Don't get me wrong. I don't mean to dismiss the company's success. Acme Packet has done a remarkable job in a dog-eat-dog industry, and proven our Rule Breakers team prescient for recommending the stock. That said, Acme's near-perfect performance has given rise to a stock price that now assumes perfect performance from here on out.

My fear: Cisco couldn't live up to such promises. Alcatel-Lucent still hasn't. As much as I'd like to promise otherwise, Acme Packet won't be able to, either.

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.