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 BroadVision (Nasdaq: BVSN ) 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 BroadVision.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||(19.5%)||Fail|
|1-Year Revenue Growth > 12%||(19.5%)||Fail|
|Margins||Gross Margin > 35%||65.7%||Pass|
|Net Margin > 15%||(30.7%)||Fail|
|Balance Sheet||Debt to Equity < 50%||0%||Pass|
|Current Ratio > 1.3||5.90||Pass|
|Opportunities||Return on Equity > 15%||(10.4%)||Fail|
|Valuation||Normalized P/E < 20||NM||NM|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||3 out of 9|
Source: S&P Capital IQ. Total score = number of passes.
With only three points, BroadVision doesn't look anything close to perfect. But the stock has gone through the roof lately, prompting questions about what's going on at the company.
BroadVision is a survivor of sorts from the Internet bubble. The company, which made business-to-business software, topped out at a reverse-split adjusted share price of more than $10,000. Since then, the stock has plunged over the past 12 years.
But since the beginning of the year, the stock has soared. The company is offering its Clearvale service to help companies better utilize social networks, which could be prompting speculation that BroadVision could share in the success of LinkedIn (NYSE: LNKD ) and Facebook by riding their coattails. Fool contributor Sean Williams also believes that day-traders are using the stock as a trading vehicle, pointing out that the company has weak fundamentals and a history of falling sales and inconsistent profits.
There's no question that anything connected to social media is hot right now. Jive Software (Nasdaq: JIVE ) went public in late 2011 with a business model that Barron's referred to as "Facebook for business," which could end up competing directly against BroadVision. And of course, Internet giant Google (Nasdaq: GOOG ) , with a strong understanding of the business-to-business space already, could make a showing in the industry anytime it deemed it worthwhile.
BroadVision won't reach perfection until it demonstrates exactly how it's going to make money with its products. Having had more than a decade to figure that out, it's hard to have faith that this time will be any different. That's why I'm planning to make a CAPScall for BroadVision to underperform the S&P 500.
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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