Get Ready for the Fall

"The bigger they are, the harder they fall." It's the worst nightmare of every investor in today's market: buying a hot stock just before it takes a nosedive.

Every day, Nasdaq.com publishes a list of stocks whose shares have just hit new 52-week highs. And every day, investors read the list and tremble -- some with greed, others with terror. On our Motley Fool CAPS investing community, these top stocks usually enjoy favorable ratings, since everyone loves a winner. But what should you do when some of CAPS' smartest investors pan one of these hot stocks?

For starters, consider using the "52 Week High" list as a starting point for further research. Stocks can rise for many reasons, but a little help from Motley Fool CAPS can make it easier to figure out how worthy those reasons are. Let's see what the more than 100,000 stock gurus in CAPS have to say about the list's latest contenders:

Everybody loves a winner
When stocks soar on the wings of success, bears become rare. Four of the stocks on today's list score CAPS' maximum five stars. But not Coinstar.

Moreover, attentive readers and Motley Fool Hidden Gems members in particular will notice that today's list is home to three familiar names: Natus, Ctrip.com, and Coinstar. And again, every one of the stocks in this sub-list remains an active Hidden Gems recommendation ... every one but Coinstar, which recently wound up in the newsletter's "sell" column. So what do the Fool, and our investing Fools, have against the stock? Let's find out, as we explore ...

The bear case against Coinstar

• CAPS All-Star PapaShaq levels a macro argument against Coinstar, and leaves it at that: "Bad time for small caps." 'Nuff said?
• No? OK, then let's go micro with a critique of Coinstar's business model, courtesy of the Fool's own TMFBreakerThiel, who grumped back in July: "I realize that capitalizing on the stupidity of the American public can be very profitable ... Coinstar has proven that people will give up 8% of their money even when they can walk into their local bank with that jug o pennies and do the same thing for free. Go figure. But can this business really grow fast enough to support a 54 P/E?"
• Of course, Coinstar's asset writedown in its fourth quarter last year, by driving the company into unprofitability, means it doesn't even have a P/E today. But as delgadom1979 says, the illogicality of the business model remains the same: "This company has a good idea. Change in your coins for cash and take a profit. I really like [their] movie rental [idea]. However I don't believe this company is going to [fare] well in this market. I just cant understand why I would give you $25 in coinage for like $20 in paper."

I hear you, guys. Coinstar's service sounds to me as illogical as buying your friend a Starbucks (Nasdaq: SBUX) gift card, when you know she's only going to use half the balance before losing the card. A little less illogical than buying Amazon.com (Nasdaq: AMZN) gift certificates, since those can be "banked" and used forever. But, hey, did you know that Coinstar will let you "buy" these gifts for free with your unwanted coins? Now that actually makes sense for consumers, and cents for Coinstar.

Add to this the fact that Coinstar beat estimates just last week, and reported strong operating cash flow, and I just don't see the stock dropping in the near future. Longer term, sure, we'll need to see the company pay down its debt and turn free cash flow-positive, but for now, everything's coming up heads for Coinstar.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Coinstar -- or even what other CAPS players are saying. We really want to hear your thoughts. Click on over to Motley Fool CAPS and tell us what you think.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

Ctrip.com and Natus Medical are Motley Fool Hidden Gems picks. Coinstar is a former pick. Starbucks is an Inside Value recommendation and it, along with Amazon.com, is a Stock Advisor pick. The Fool owns shares of Starbucks. Try any of our Foolish newsletters today, free for 30 days.

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. 742 out of more than 100,000 players. The Fool has a disclosure policy.