Rocket Stock or Dud?

"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.

Sometimes, stocks rise for a reason -- but other times, the rise becomes the reason. No matter how often we caution them not to, investors tend to buy "hot" stocks and trust momentum to keep them moving upwards.

But 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 exactly that. According to the smart folks at finviz.com, the investments have doubled (or nearly so) over the past year, and they just might be ripe to fall back to earth:

Companies are selected by screening for 100% and higher intraday price appreciation over the last 12 months on finviz.com. Five stars = highest possible CAPS rating; one star = lowest. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

What do fuel additives, organic light-emitting diodes, and gold-mining have in common? The companies behind these endeavors boast some of the hottest stocks on the market today. Over the past year, shares of specialty chemicals maker Innospec and precious-metals miner US Gold have both more than doubled (and are closing on three-bagger status). OLED specialist Universal Display has done even better, tripling en route to a future quadruple.

Pause for applause
Congratulations all around. But now that the stocks have taken their bow, it's time to ask the important question: Which of these companies will continue to excel in 2011?

CAPS member AjOrellana bets that US Gold Corp CEO Rob McEwen can repeat his earlier performance as CEO of the similarly named Goldcorp: "This man turned [Goldcorp] ... into a top of the line miner." (And a profitable investment.) "Recently he bought 20 million worth of shares in UXG. This creates an incentive to move the company forward!"

Meanwhile, preferring shiny new technology over shiny bricks, CAPS member Fabbros counters that "with patents in the next evolution in displays and customers like Apple and Samsung chomping at the bit," Universal Display simply can't go wrong.

But however good these companies might be, our CAPS community's consensus suggests that a third stock will outperform them both.

The bull case for Innospec
CAPS member RioRRawGnIkIv introduced us to Innospec back in 2008 as a maker of "performance additives for motor fuels and lubricating oils." It sells those additives to oil refiners such as Royal Dutch Shell or Petron in the Philippines.

We all know how well the refining industry has been doing lately. Just last month, we were writing almost daily about the spate of upgrades going around to refiners like Western Refining (NYSE: WNR), Valero (NYSE: VLO), and Frontier Oil (NYSE: FTO) -- beneficiaries of the glut in West Texas Intermediate crude. Logically, what's good for their business should be good for Innospec, too.

Indeed, CAPS member bdlessans thinks the company has "large upside potential as they are a leader in a newly growing industry. Fundamentally and technically, [Innospec] is a very sound company" -- a fact underscored by CAPS member cmolinel last month, when he noticed a large number of "heavy insider buys" cropping up at Innospec back in mid-February.

Clearly, CAPS members love Innospec. Insiders have begun buying, too -- but should you?

At first glance, it's hard to argue with the company's bull thesis. Even after rising more than 160% over the past 12 months, the stock still sells for less than 10 times earnings. That's not a bad price, provided Innospec can maintain the near-40% pace of annual earnings growth it's posted over the past five years.

Only two things concern me about the stock. First, free cash flow doesn't quite reach the level of reported GAAP earnings at Innospec. Valued on its free cash flow, the stock trades closer to 13.2 times free cash flow. That's admittedly still not a bad price, if Innospec can keep the growth coming.

Second, Innospec has almost no coverage at all on Wall Street. This may be a good thing -- no one's looking at Innospec, which means that if this story is as good as it looks, you can basically buy the stock unopposed today, and wait for the real profits to roll in once Wall Street wakes up. On the other hand, no Wall Street coverage also means no guidance on future growth rates. Buy Innospec today, and you're pretty much flying solo, hoping the company can keep doing what it's been doing for a while longer.

Time to chime in
Of course, there's a solution to that problem, too: Motley Fool CAPS. Even if Wall Street isn't paying attention to Innospec yet, some six dozen CAPS members are. Together, they're helping each other chart the company's prospects, and predict whether it will outperform. So far, they've done pretty well at that task.

Want to help out? If you have some insight into the company that will help us understand it better, welcome aboard! Click over to Motley Fool CAPS today, and tell us what you think about Innospec.