Has Kopin 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 Kopin (Nasdaq: KOPN  ) 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 Kopin.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 11.5% Fail
  1-Year Revenue Growth > 12% (6.5%) Fail
Margins Gross Margin > 35% 34.0% Fail
  Net Margin > 15% (0.6%) Fail
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 6.72 Pass
Opportunities Return on Equity > 15% 0.1% Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   2 out of 9

Source: S&P Capital IQ. NM = not meaningful due to negative earnings. Total score = number of passes.

Since we looked at Kopin last year, the company hasn't improved on its two-point score. Moreover, the stock has lost a third of its value, as Kopin went from earning a profit to suffering a loss in the past year.

By all appearances, Kopin should be thriving. As a maker of small flat-panel displays, the company is squarely in the middle of huge demand for smartphones and other small mobile devices. By providing its III-V semiconductor circuits to TriQuint Semiconductor (Nasdaq: TQNT  ) and Skyworks Solutions (Nasdaq: SWKS  ) , Kopin gains indirect exposure to the long success of the iPhone, which has helped boost Kopin's revenue growth immensely in recent years.

Unfortunately, Kopin's other business segment doesn't have the same favorable trends pushing it forward. Supplying Raytheon (NYSE: RTN  ) and other defense customers with weapon sights and other battle-hardened applications keeps Kopin diversified, but with budget cuts hurting the entire defense sector, Kopin's revenue has been hurt.

To try to get back to profitability, Kopin has implemented cost reduction strategies, including consolidating its two U.S. manufacturing plants into a single location. But its biggest prospect appears to be its Golden-i hands-free-computing headset, and it's working with Motorola Solutions (NYSE: MSI  ) to release Golden-i headsets for general industrial use by the end of this year.

For Kopin to improve, it needs to get as efficient as possible while focusing on potential growth areas. With such strong headwinds from the defense sector, however, it may be a while before Kopin can start moving toward perfection.

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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Click here to add Kopin 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 TriQuint Semiconductor and Raytheon. 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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  • Report this Comment On May 26, 2012, at 6:31 AM, JohnTBissell wrote:

    Kopin in effect has given up on military contracts, they have ceded all that business to eMagin because the power requirements of their displays are just to demanding.

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