Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if TD AMERITRADE (Nasdaq: AMTD) fits the bill.

The quest for perfection
 Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at TD AMERITRADE.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 9.8% Fail
1-Year Revenue Growth > 12% 8.5% Fail
Margins Gross Margin > 35% 96.3% Pass
Net Margin > 15% 23.4% Pass
Balance Sheet Debt to Equity < 50% 32.5% Pass
Current Ratio > 1.3 1.16 Fail
Opportunities Return on Equity > 15% 16.2% Pass
Valuation Normalized P/E < 20 15.44 Pass
Dividends Current Yield > 2% 1.4% Fail
5-Year Dividend Growth > 10% NM NM
Total Score 5 out of 9

Source: S&P Capital IQ. NM = not meaningful; TD AMERITRADE started paying a regular dividend in Nov. 2010. Total score = number of passes.

Since we looked at TD AMERITRADE last year, the online broker has lost some ground. Slowing growth rates are the primary problem for the company, which missed out on a big chance to boost its revenue over the past year.

TD AMERITRADE has held up relatively well during a tough period for discount brokers. It lacks most of the Wall Street baggage that big full-service brokers like Morgan Stanley (NYSE: MS) and Bank of America's (NYSE: BAC) Merrill Lynch carry, but it still faces challenges. With extremely low interest rates, brokers have been forced to waive money market fees in many cases, hurting both TD and competitors like Charles Schwab (NYSE: SCHW) and Interactive Brokers (Nasdaq: IBKR). Moreover, a huge price war on commissions has kept net margins somewhat in check.

But TD AMERITRADE is getting lots of things right. In its most recent quarter, the company announced a jump in revenue of more than 15%, with strong average client trade volume due to the recent big swings in the stock market. It also brought in 150,000 new accounts during the quarter and boosted its dividend. With commissions accounting for nearly 45% of revenue -- quite a bit more than Schwab or E*TRADE Financial (Nasdaq: ETFC), TD AMERITRADE is getting as much as it can from each of those customers.

Perhaps the most surprising news to hit the company is that TD AMERITRADE chose not to buy out E*TRADE when it considered putting itself up for sale. But with E*TRADE shares continuing to get cheaper all the time, there doesn't seem to be any hurry even if TD AMERITRADE does want to pick up its rival.

Eventually, a turn in interest rates should help boost TD AMERITRADE's profits. Until that happens, though, it's going to be difficult for the brokerage company to get much closer to perfection.

Keep searching
 No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

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Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our " 13 Steps to Investing Foolishly ."