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 Republic Services
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 Republic Services.
Factor |
What We Want to See |
Actual |
Pass or Fail? |
---|---|---|---|
Growth |
5-Year Annual Revenue Growth > 15% |
22.2% |
Pass |
1-Year Revenue Growth > 12% |
0.5% |
Fail |
|
Margins |
Gross Margin > 35% |
40.9% |
Pass |
Net Margin > 15% |
6% |
Fail |
|
Balance Sheet |
Debt to Equity < 50% |
95.3% |
Fail |
Current Ratio > 1.3 |
0.67 |
Fail |
|
Opportunities |
Return on Equity > 15% |
6.3% |
Fail |
Valuation |
Normalized P/E < 20 |
16.43 |
Pass |
Dividends |
Current Yield > 2% |
3% |
Pass |
5-Year Dividend Growth > 10% |
16.5% |
Pass |
|
Total Score |
5 out of 10 |
Source: S&P Capital IQ. Total score = number of passes.
When we looked at Republic Services last year, it did slightly better, weighing in with six points. Revenue that came to a standstill in the past year is the culprit for the one-point drop.
Republic plays second fiddle to Waste Management
But as times have stayed tough for the economy, there's more competition in the industry. Waste Management has a huge presence in the lucrative North American recycling market, while other companies like Veolia Environnement
Garbage has captured the attention of the investing community, though. With ETFs like Market Vectors Environmental Services
For Republic to reach perfection, it has to find ways to jump-start its growth. But with plenty of opportunities around the world for it to do so -- and a great dividend to enjoy while you wait -- Republic shares are worth a second look.
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 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 ."