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 Boyd Gaming
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 Boyd Gaming.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-Year Annual Revenue Growth > 15% | 3.3% | Fail |
| 1-Year Revenue Growth > 12% | 6.9% | Fail | |
| Margins | Gross Margin > 35% | 49.4% | Pass |
| Net Margin > 15% | 0.4% | Fail | |
| Balance Sheet | Debt to Equity < 50% | 270.7% | Fail |
| Current Ratio > 1.3 | 1.07 | Fail | |
| Opportunities | Return on Equity > 15% | 0.7% | Fail |
| Valuation | Normalized P/E < 20 | 107.00 | Fail |
| Dividends | Current Yield > 2% | 0% | Fail |
| 5-Year Dividend Growth > 10% | 0% | Fail | |
| Total Score | 1 out of 10 |
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Boyd Gaming last year, the company has lost a point. Although the company turned profitable, it did so just barely, and the stock has struggled just to do a little better than breakeven over the past year.
Most investors in the gaming industry know the big names in the business, with Las Vegas Sands
But one area for huge potential growth is in online poker. Boyd has agreed to team up with MGM Resorts
For now, though, Boyd is stuck in the dumps. In its most recent quarter, Boyd's New Jersey sales fell 4%, and although the company's operations in the Midwest and South returned to a small profit, it wasn't enough to meet what analysts had expected from the company.
For Boyd to improve, what it really needs is for gaming to get a shot in the arm from somewhere. An economic recovery would do the trick, but what's more likely is the future legalization of online poker setting off a new gold rush as the entire industry tries to cash in.
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.
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