Has Buckle Become 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 Buckle (NYSE: BKE  ) 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 Buckle.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 14.9% Fail
  1-Year Revenue Growth > 12% 11.9% Fail
Margins Gross Margin > 35% 49.7% Pass
  Net Margin > 15% 14.2% Fail
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 2.91 Pass
Opportunities Return on Equity > 15% 42.7% Pass
Valuation Normalized P/E < 20 14.31 Pass
Dividends Current Yield > 2% 6.7%* Pass
  5-Year Dividend Growth > 10% 16.5% Pass
       
  Total Score   7 out of 10

Source: S&P Capital IQ. Total score = number of passes. * Includes special dividend.

Since we looked at Buckle last year, the company has picked up an additional point, as the company paid its third straight annual special dividend. But looking at its narrow misses in the other categories, Buckle could just as easily have been a perfect stock with a bit of improvement.

The retail space has been fraught with peril lately. Slow sales over the holiday season forced Abercrombie & Fitch (NYSE: ANF  ) and American Eagle Outfitters (NYSE: AEO  ) to resort to costly promotional discounting, hurting same-store sales and bringing their future prospects into question. Buckle, by contrast, has continued to post strong comps and revenue figures and beat analyst expectations on earnings in its most recent quarter.

One of Buckle's key success traits is employee satisfaction. Just as Costco (Nasdaq: COST  ) outperforms rival Sam's Club in part because of its happier employees, Buckle has demonstrated a big sales advantage over its competition. That satisfaction brings with it better customer service, which helps the chain stand out from other, less friendly retailers.

Because of its success, Buckle has been able to buck the retail trend and expand at a measured but solid pace. Contrast that with Gap (NYSE: GPS  ) , which announced late last year that it would close about 20% of its North American stores due to weak sales.

For Buckle to keep improving, it needs to keep doing what it's been doing: Keeping customers happy and attracting new ones by word of mouth. That simple strategy could make Buckle a perfect stock before too long.

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.

Buckle isn't the 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 Buckle 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 in this article. The Motley Fool owns shares of Costco. Motley Fool newsletter services have recommended buying shares of Costco. 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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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 21, 2012, at 7:08 PM, miltmiso wrote:

    I've been lucky enough to own BKE for a 3 years. With invested dividends, a my original 10 k investment is now worth 18.9 k.

    Your metrics are interesting but you are splitting hairs. The growth rate misses = 0.1 % and the net margin miss = 0.8 %. Big deal.

    BKE may not be the perfect stock, but it's close.

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