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.

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.

But if the price goes up too much, even a great company can turn into a lousy investment. Below I list a few stocks that may have done just that. These stocks, according to the smart folks at finviz.com, have more than doubled since the beginning of this year and just might be ripe to fall back to earth.

Stock	Recent Price	CAPS Rating (Out of 5):
Brocade Communications  (Nasdaq: BRCD)	$8.38	****
Seagate Technology (NYSE: STX)	$11.15	***
Genworth Financial  (NYSE: GNW)	$6.24	***
AK Steel  (NYSE: AKS)	$19.99	***
Cell Therapeutics	$1.38	**

Companies are selected by screening for 100% and higher price appreciation year-to-date on finviz.com. Five stars = highest possible CAPS rating; one star = lowest. Current pricing provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Each of these stocks has enjoyed remarkable gains over the past six months. And truth be told, the 135,000 (and counting) investors who make up Motley Fool CAPS aren't at all certain that this is the end of the road for 'em. To the contrary, Fools give bearish marks to just one stock on today's list -- Cell Therapeutics -- while they straddle the fence on most of the rest.

The one company they think has the best chance of continuing to ride higher, though, is Brocade Communications. Want to know why? So do I; let's find out.

The bull case for Brocade Communications
PizzeriaMan introduces us to Brocade: "Cash flow positive and profitable company serving an important niche (high-end data networking and IP networking) of data center technology market. Will also benefit from slugfest between [Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM) and Cisco (Nasdaq: CSCO)] ... "

CAPS member sentinelbrit highlighted the stock back in May, based on the company's having just beaten earnings and its being "very upbeat on the future." Our CAPS All-Star continued:

It is linking up with IBM and HP to sell some of its products. Mgt is very confident of beating earlier estimates of 40 to 50 cents in earnings this year. On that basis, the stock is trading on about 13x this year's earnings. This is ridiculously cheap for a growth stock.

Last but not least, vicocala tosses out the possibility of a buyout: "Integration of Foundry is coming along nicely and the stock is being thought of as one of the top next takeover stocks."

But how likely is a buyout, really? On one hand, I can see why a would-be acquirer might be attracted to this company's pace of sales growth. If the rest of the global economy is in recession, Brocade doesn't seem to have noticed it: It posted  43% improvement in revenues in its last quarter. Brocade also has a history of generating strong cash profits on its sales -- nearly $300 million last year, in fact.

On the other hand, on a trailing-12-month basis, Brocade is currently burning cash, unprofitable under GAAP, and trading for 16 times what analysts expect it to earn over the course of this year. Its respectable sales growth notwithstanding, analysts who follow the company believe that the best Brocade will manage is about 12.5% annual profits growth over the next five years.

Time to chime in
Call me a cynic, but when I look at a multiple of 16 on a 12.5% grower, "ridiculously cheap" is not the phrase that comes to mind. "Pretty pricey" is closer to it.

But when you get right down to it, this column isn't about what I think about Brocade at all -- or even about what my fellow CAPS members have written above. What we really want to know is what you think about the stock. Can Brocade return to its cash-profitable ways of yesteryear, or is it going through something more than just a temporary setback?