Is Golar LNG 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 Golar LNG (Nasdaq: GLNG  ) 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 Golar LNG.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 7.4% Fail
  1-Year Revenue Growth > 12% 12.7% Pass
Margins Gross Margin > 35% 65.1% Pass
  Net Margin > 15% 0.2% Fail
Balance Sheet Debt to Equity < 50% 210.1% Fail
  Current Ratio > 1.3 0.83 Fail
Opportunities Return on Equity > 15% (0.9%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 3.4% Pass
  5-Year Dividend Growth > 10% (12%) Fail
       
  Total Score   3 out of 9

Source: Capital IQ, a division of Standard and Poor's. NM = not meaningful; Golar had negative earnings during the time period. Total score = number of passes.

With just three points, Golar LNG doesn't look very perfect. But the company has picked up a lot of interest from people who've looked for natural gas to soar for years now.

With oil prices staying stubbornly above $100 per barrel, you'd think that energy companies across the board would be performing well. But natural gas hasn't seen prices rise at anything close to the rate of oil, leaving major producers Chesapeake Energy (NYSE: CHK  ) and EOG Resources (NYSE: EOG  ) wondering whether their gas operations will ever pay off to their full potential.

Part of the reason for low gas prices is that transporting natural gas around the globe is a lot harder than putting crude oil in a tanker. But Golar is trying to change that, with one of the biggest fleets of liquefied natural gas carriers in the world. With companies like Cheniere Energy Partners (AMEX: CQP  ) and its parent Cheniere Energy (AMEX: LNG  ) seeking to expand LNG infrastructure, Golar provides a key element in turning the natural gas industry into a truly global business -- and it's expanding at full speed to get a head start on the competition.

With consolidation in the energy shipping industry -- Kirby (NYSE: KEX  ) agreed to buy K-Sea Transportation (NYSE: KSP  ) two months ago at a substantial premium -- shareholders are jumping into Golar. After a big run-up, shares aren't cheap, and if gas continues to languish, Golar might as well. But if natural gas ever catches up to oil, then Golar could look like the perfect play at the perfect time.

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 Golar LNG 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. Alpha Newsletter Account, LLC owns shares of Chesapeake Energy. 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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