Is Ferrellgas Partners the Perfect Stock?

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 Ferrellgas Partners (NYSE: FGP  ) 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 Ferrellgas Partners.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

5.0%

Fail

 

1-Year Revenue Growth > 12%

15.4%

Pass

Margins

Gross Margin > 35%

28.4%

Fail

 

Net Margin > 15%

(1.8%)

Fail

Balance Sheet

Debt to Equity < 50%

1335.4%

Fail

 

Current Ratio > 1.3

1.10

Fail

Opportunities

Return on Equity > 15%

(50.2%)

Fail

Valuation

Normalized P/E < 20

115.27

Fail

Dividends

Current Yield > 2%

9.9%

Pass

 

5-Year Dividend Growth > 10%

0%

Fail

       
 

Total Score

 

2 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

With only two points, Ferrellgas Partners hasn't been grilling up perfection for its shareholders. The company behind one of the most popular propane tank sellers has had to deal with inflated energy prices recently.

Ferrellgas is the company behind Blue Rhino, a service that allows customers to buy propane tanks for their grills or other household uses and then exchange empty tanks for full ones at a variety of convenient locations, such as grocery stores and big-box retailers. Going into the all-important summer season, Ferrellgas announced that Walgreen (NYSE: WAG  ) and Safeway (NYSE: SWY  ) would carry Blue Rhino products, joining companies like Sears Holdings (Nasdaq: SHLD  ) and Kroger (NYSE: KR  ) in offering tank exchange.

What makes Ferrellgas most interesting for investors is its high dividend yield. Along with competitors including Suburban Propane (NYSE: SPH  ) and Inergy (NYSE: NRGY  ) , the propane industry overall offers amazing dividends. But Ferrellgas can't compete with either of those two companies on net margins, and its huge debt load gives it a severe handicap.

For Ferrellgas to become a perfect stock, it will have to go beyond simply making the top dividend yield lists and demonstrate an ability to build up its business. If it can do that, then when propane prices finally get more favorable, then Ferrellgas could see a big rebound from its stock's recent swoon.

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.

Click here to add Ferrellgas Partners to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

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."

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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