Is Motricity 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 Motricity (Nasdaq: MOTR  ) 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 Motricity.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 57.1%* Pass
  1-Year Revenue Growth > 12% 17.3% Pass
Margins Gross Margin > 35% 64.2% Pass
  Net Margin > 15% (5.3%) Fail
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 3.57 Pass
Opportunities Return on Equity > 15% (4.3%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   5 out of 9

Source: Capital IQ, a division of Standard and Poor's. NM = not meaningful; Motricity had negative earnings during the period. * 4-year growth rate. Total score = number of passes.

With a score of 5, Motricity looks at first glance like it's just chugging along at a normal speed. But the mobile data provider seems poised to soar based on its presence in a fast-growing industry.

Motricity hit the public markets running with a big IPO last June. Shares soared as investors believed that the company, which attempts to tailor personalized content to mobile device users, would help carriers AT&T (NYSE: T  ) , Verizon (NYSE: VZ  ) , and Sprint Nextel (NYSE: S  ) deliver the content their customers most wanted to see.

Recently, though, the stock has fallen sharply. As the IPO's six-month lockup period expired, momentum-driven shareholders feared that insiders would dump their shares for a quick profit. Yet just as quickly, the shares sometimes turn around and rise on news of new customers or promising sources of revenue.

As a young company, Motricity doesn't have the history to determine whether it's going to be a perfect stock. Until it has a longer track record behind it, you can expect plenty of volatility as speculators move from one side of the fence to the other.

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 Motricity 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 in this article. AT&T is a Motley Fool Inside Value selection.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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 21, 2011, at 4:25 PM, usteel wrote:

    With the addition of the exciting platforms ADENYO brings to the now greatly expanded options MOTRICITY can offer the acquisition of ADENYO will make this one of the near perfect stocks. I think it is a great marriage between these two innovative companies and now that it is finalised, (as of earlier in April) I am keeping my money here.

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