Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
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 DISH Network (Nasdaq: DISH ) 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 DISH Network.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Growth||5-Year Annual Revenue Growth > 15%||8%||Fail|
|1-Year Revenue Growth > 12%||8.4%||Fail|
|Margins||Gross Margin > 35%||41.6%||Pass|
|Net Margin > 15%||10.2%||Fail|
|Balance Sheet||Debt to Equity < 50%||NM||NM|
|Current Ratio > 1.3||1.16||Fail|
|Opportunities||Return on Equity > 15%||NM||NM|
|Valuation||Normalized P/E < 20||11.27||Pass|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||2 out of 8|
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
With just two points, DISH Network's stock isn't giving you crystal-clear reception. But the company has a lot of interesting things happening that could create a turnaround.
DISH Network is a satellite TV provider. As such, it competes not just with fellow disher DirecTV (Nasdaq: DTV ) but also cable companies Time Warner Cable (NYSE: TWC ) and Comcast (Nasdaq: CMCSA ) . With TV giving way to the Internet as a source of content, DISH has had trouble keeping up with the growth of cable companies that offer broadband Internet access internally as part of triple-play packages.
But recently, DISH has made a number of interesting moves. It leapt at the chance to buy the assets of Blockbuster out of bankruptcy, leading some to think that DISH will go after Netflix (Nasdaq: NFLX ) with an infrastructure that combines digital streaming and home delivery.
In addition, the company finally settled its lawsuit with TiVo (Nasdaq: TIVO ) , pushing shares of both companies higher despite DISH having to agree to pay the DVR company a cool $500 million. That removes a major overhang from the stock and may get investors to pay attention to a strong first quarter.
DISH isn't perfect, but given time, it could get a whole lot better. Depending on what the company does with its Blockbuster buy, DISH could be much closer to perfection in a few years.
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 DISH Network to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.