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 JetBlue
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 JetBlue.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-Year Annual Revenue Growth > 15% | 16.6% | Pass |
| 1-Year Revenue Growth > 12% | 16.3% | Pass | |
| Margins | Gross Margin > 35% | 32.2% | Fail |
| Net Margin > 15% | 2.6% | Fail | |
| Balance Sheet | Debt to Equity < 50% | 183.5% | Fail |
| Current Ratio > 1.3 | 1.22 | Fail | |
| Opportunities | Return on Equity > 15% | 6.3% | Fail |
| Valuation | Normalized P/E < 20 | 16.79 | Pass |
| Dividends | Current Yield > 2% | 0% | Fail |
| 5-Year Dividend Growth > 10% | 0% | Fail | |
| Total Score | 3 out of 10 |
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
With only three points, JetBlue isn't flying high. The airline industry has had tough times lately, and although most of the airlines have become profitable, few have any confidence that the good times will last.
When it was founded in 1998, JetBlue was seen as a primary competitor to Southwest Airlines
Lately, airlines have responded to rising costs by implementing various fees for everything from baggage to fuel surcharges. That has helped JetBlue stay profitable, but it also risks incurring the wrath of fee-weary passengers.
It's entirely possible that no airline can truly be a perfect stock. JetBlue has fared better than many, but unless trends like consolidation and smarter route selection become more prevalent throughout the industry, even the more promising airlines like JetBlue will have trouble posting the kind of financial results that most investors prefer to see.
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.
