Is Polaris Industries 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 Polaris Industries (NYSE: PII) 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 Polaris Industries.

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

With a score of only 3, Polaris doesn't seem to be revving up toward perfection. But the vehicle manufacturer appears poised to pounce on any updraft in the economy in the near future.

Polaris makes a variety of recreation-oriented vehicles, including off-road all-terrain vehicles, snowmobiles, and motorcycles. Those sorts of discretionary purchases may seem like they'd be the first victim of a recession. But Polaris has demonstrated an ability to innovate, and that has helped the company beat analyst estimates in 18 straight quarters.

Recently, the company has gone into overdrive. In its most recent quarter, Polaris announced huge jumps in earnings and sales while guiding future results higher. It also acquired iconic Indian Motorcycle, issuing a direct challenge to the struggling Harley-Davidson (NYSE: HOG) as well as other motorcycle competitors like Honda Motor (NYSE: HMC).

With returns on equity that put Arctic Cat (Nasdaq: ACAT) to shame, Polaris seems to be firing on all cylinders. It barely misses out on several points in our scale, with just a bit more debt than investors like to see, a somewhat elevated valuation, and dividend yield and growth that fall just short of our targets. But overall, Polaris looks like an interesting play on the health of the U.S. consumer -- and it could get a lot closer to perfection in the years to come.

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.

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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.