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 Zoll Medical
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 Zoll Medical.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-Year Annual Revenue Growth > 15% | 16.1% | Pass |
| 1-Year Revenue Growth > 12% | 14.1% | Pass | |
| Margins | Gross Margin > 35% | 56.6% | Pass |
| Net Margin > 15% | 5.4% | Fail | |
| Balance Sheet | Debt to Equity < 50% | 0% | Pass |
| Current Ratio > 1.3 | 3.50 | Pass | |
| Opportunities | Return on Equity > 15% | 8.1% | Fail |
| Valuation | Normalized P/E < 20 | 32.99 | Fail |
| Dividends | Current Yield > 2% | 0% | Fail |
| 5-Year Dividend Growth > 10% | 0% | Fail | |
| Total Score | 5 out of 10 |
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
With five points, Zoll Medical isn't lighting up the scorecard. The medical device maker has seen its shares plunge in recent months, but the move could be overblown.
Zoll is a pioneer in the field of medical devices designed to resuscitate patients. For years, the company has put its heart defibrillators and AutoPulse cardiac support pump up against competing products from Medtronic
Shareholders, however, have gotten quite a roller-coaster ride in recent months. After soaring in response to continued success in its most recent quarter, shares then plunged after Zoll said that Medicare might not provide reimbursement for as many LifeVest uses as it had initially hoped. Although rivals including Boston Scientific
For Zoll to get back on its winning path, it needs to get a positive resolution to its Medicare woes. With strong products and demographic trends toward an aging population in its favor, Zoll could easily start rising back toward perfection in the near future.
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."
