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.
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