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 ManTech International
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 ManTech International.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-Year Annual Revenue Growth > 15% | 17.5% | Pass |
| 1-Year Revenue Growth > 12% | (2.7%) | Fail | |
| Margins | Gross Margin > 35% | 14.5% | Fail |
| Net Margin > 15% | 4.2% | Fail | |
| Balance Sheet | Debt to Equity < 50% | 17.7% | Pass |
| Current Ratio > 1.3 | 1.89 | Pass | |
| Opportunities | Return on Equity > 15% | 10.7% | Fail |
| Valuation | Normalized P/E < 20 | 7.01 | Pass |
| Dividends | Current Yield > 2% | 3.8% | Pass |
| 5-Year Dividend Growth > 10% | NM | NM | |
| Total Score | 5 out of 9 |
Source: S&P Capital IQ. NM = not meaningful; ManTech paid its first dividend in November 2011. Total score = number of passes.
Since we looked at ManTech International last year, the company has lost a point. A drop in revenue is to blame for the security software company's score, but of more concern is the fact that its shares have lost about a third of their value in the past year.
Computer security is rapidly becoming more important for government and commercial entities, as the threat of cyber attacks has risen sharply in recent years. As a result, the security industry has emerged to become a key component of technology, with ManTech, CACI International
That strategy has paid dividends for investors. As Fool co-founder and CEO Tom Gardner explained late last year, ManTech is unusual among small tech companies in generating enough dependable cash flow to decide to initiate a dividend late last year.
Still, the company still faces some challenges. In May, ManTech's stock fell sharply as the company missed earnings estimates and lowered guidance for the rest of the year. Depending on the government for revenue is tough right now, and there's no relief in sight.
For ManTech to improve, it needs to compete more effectively and boost its efficiency. But at a rock-bottom valuation, investors are getting a cheap entry point to take a chance on ManTech.
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.
ManTech International may not be perfect, but we've got some other ideas you might 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.
Meanwhile, Intel is trying to regain its leadership role in semiconductors by playing catch-up in the mobile space. Can it succeed? Our top tech analyst tells all in our latest premium report on Intel. Read it today.
Click here to add ManTech International to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.
