Is Clear Channel Outdoor 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 Clear Channel Outdoor (NYSE: CCO  ) 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 Clear Channel Outdoor.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 0.7% Fail
  1-Year Revenue Growth > 12% 7.4% Fail
Margins Gross Margin > 35% 45.4% Pass
  Net Margin > 15% 1.4% Fail
Balance Sheet Debt to Equity < 50% 91% Fail
  Current Ratio > 1.3 2.02 Pass
Opportunities Return on Equity > 15% 2.3% Fail
Valuation Normalized P/E < 20 68.19 Fail
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   2 out of 10

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

With only two points, Clear Channel Outdoor has a long way to go to reach perfection. The advertising company doesn't have the most state-of-the-art business model, and that may be part of its problem.

Clear Channel is in the business of outdoor advertising through billboards. Although it's a tough business with plenty of competition, Clear Channel has actually done a good job just turning a profit recently. Lamar Advertising (Nasdaq: LAMR  ) and AirMedia Group (Nasdaq: AMCN  ) , by contrast, have posted losses and face a difficult road trying to become profitable.

As times change, regular billboards are no longer enough. That's why Clear Channel has been putting up new digital billboards. The advantage there is that changing displays no longer require a huge amount of physical labor. But with the domestic market lagging behind, building international market share takes some extra effort.

Last week, Clear Channel announced a move that made shareholders very happy. The company plans to raise $2.2 billion through debt offerings, which it will use to pay a special dividend of more than $6 per share. Given that the stock trades at just over $14, that's a massive payout -- and the offering will greatly increase the company's indebtedness going forward. What it won't do, however, is change the company's competitiveness. With advertisers Harte-Hanks (NYSE: HHS  ) and movie-ad giant National CineMedia (Nasdaq: NCMI  ) both posting much stronger profits, Clear Channel has a lot of work to do if it expects to push its score higher in the 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 the best investments from the rest.

Clear Channel Outdoor may not be a perfect stock, but we've got some ideas you may like better. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

Click here to add Clear Channel Outdoor to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. 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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