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 Tupperware (NYSE: TUP ) 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 Tupperware.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||8.2%||Fail|
|1-Year Revenue Growth > 12%||12.4%||Pass|
|Margins||Gross Margin > 35%||66.7%||Pass|
|Net Margin > 15%||8.4%||Fail|
|Balance Sheet||Debt to Equity < 50%||124.0%||Fail|
|Current Ratio > 1.3||1.14||Fail|
|Opportunities||Return on Equity > 15%||33.8%||Pass|
|Valuation||Normalized P/E < 20||18.52||Pass|
|Dividends||Current Yield > 2%||2.3%||Pass|
|5-Year Dividend Growth > 10%||6.4%||Fail|
|Total Score||5 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Tupperware last year, the company has kept its five-point score. Growth has picked up a bit, but a much larger debt load carries some concerns for investors.
Tupperware's namesake plastic storage containers are nearly ubiquitous in U.S. households. As a result, the company has had to go international to find growth. Lately, that's been extremely lucrative, with sales in India and Brazil both up more than 60% in the past year. Tupperware now gets a whopping 90% of its business from overseas markets, where its dealer-driven "Tupperware party" model gives it a strong competitive advantage over the more traditional sales methods of Newell Rubbermaid (NYSE: NWL ) .
Moreover, Tupperware isn't just about leftovers anymore. The company went head-to-head against Avon Products (NYSE: AVP ) by offering beauty products, along with other items including appliances and baby supplies. Now, with Avon finding itself the subject of a takeover bid, the question is whether Tupperware will follow suit -- or make its own move for Avon.
Still, the company has to deal with competition and price pressure. Dow Chemical (NYSE: DOW ) helped create Ziploc, which privately held S.C. Johnson now owns and has expanded to produce disposable food containers. Similarly, Glad, which is majority-owned by Clorox (NYSE: CLX ) , went beyond trash bags to produce Tupperware-like containers as well.
For Tupperware to keep growing, it needs to demonstrate the value proposition its products give customers as well as keep targeting new markets. If it can keep capitalizing on its emerging-market opportunities, though, Tupperware could get a lot closer to perfection in the years ahead.
No stock is a sure thing, but some stocks are a lot closer to perfection 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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