Is RPC the Perfect Stock for 2012?

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 RPC (NYSE: RES  ) 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 RPC Group.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 24.5% Pass
  1-Year Revenue Growth > 12% 79.8% Pass
Margins Gross Margin > 35% 45.7% Pass
  Net Margin > 15% 16.8% Pass
Balance Sheet Debt to Equity < 50% 19.6% Pass
  Current Ratio > 1.3 3.05 Pass
Opportunities Return on Equity > 15% 45.9% Pass
Valuation Normalized P/E < 20 10.79 Pass
Dividends Current Yield > 2% 1.95% Fail
  5-Year Dividend Growth > 10% 32.3% Pass
       
  Total Score   9 out of 10

Source: S&P Capital IQ. Total score = number of passes.

With a score of 9, RPC comes as close as it could to perfection while falling just short. The oil-field-service specialist has benefited from high oil prices and the resulting boom in drilling activity.

RPC is based in Atlanta but does business around the world, ranging from the U.S. and Canada to the Middle East and Latin America. However, RPC tends to specialize in U.S.-centered projects.

The past couple of years have given RPC and its peers a great environment for growth in oil services. Even giant Schlumberger (NYSE: SLB  ) has been able to post revenue growth at a 16% annual clip over the past five years, as it extends its leadership role over the industry. Yet even though National Oilwell Varco (NYSE: NOV  ) is a bit smaller and has been able to grow slightly faster than Schlumberger, RPC has managed to post even faster revenue growth. It's uncertain how long that will continue, though -- analysts peg RPC's earnings growth going forward at a slower rate than either Schlumberger or National Oilwell Varco.

Given its small size, RPC has also been a popular candidate for takeover rumors. Back in October, rumors swirled that Patterson-UTI (Nasdaq: PTEN  ) might buy RPC. That wasn't completely ridiculous, as the move would have broadened Patterson's largely domestic scope of business. Later, Superior Energy (NYSE: SPN  ) was put forward as another potential buyer. With Superior already having global reach, the fit wasn't as obvious. In any event, none of the rumors have yet come to fruition.

RPC is just a hair's breadth away from perfection, and the slightest drop in price or boost in dividend would push its yield above the 2% level to give it a perfect 10. In any event, as long as high oil prices can keep RPC's growth up, the stock should remain attractive.

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 RPC 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. The Motley Fool owns shares of National Oilwell Varco. Motley Fool newsletter services have recommended buying shares of National Oilwell Varco. 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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