Is Aegion 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 Aegion (Nasdaq: AEGN  ) 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 Aegion.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 16.1% Pass
  1-Year Revenue Growth > 12% 7.6% Fail
Margins Gross Margin > 35% 23.3% Fail
  Net Margin > 15% 3.4% Fail
Balance Sheet Debt to Equity < 50% 39.8% Pass
  Current Ratio > 1.3 2.66 Pass
Opportunities Return on Equity > 15% 5.5% Fail
Valuation Normalized P/E < 20 24.28 Fail
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   3 out of 10

Source: S&P Capital IQ. Total score = number of passes.

We didn't look at Aegion last year, but we did look at Insituform Technologies, which is now Aegion's subsidiary. Insituform also scored three points. For its part, though, Aegion has seen its shares rise 35% in the past year, as the company gives investors a wider range of businesses beyond Insituform's water and wastewater services.

Aegion has several diverse market niches, but they're all related in that they deal with infrastructure and construction, ranging from energy and mining pipelines and sewer pipes to structural wrapping and reinforcement materials. For instance, back in late 2010, the company's United Tube Systems segment got a $10.3 million contract with Freeport-McMoRan (NYSE: FCX  ) to install liners in mining pipelines. Aegion has also worked for a number of municipal governments to provide engineering services.

Even as cities face tough times, Aegion has seen a lot of business. Just in the past month, the company has won several contracts, including a $13 million deal for sewers in Hong Kong, $5 million for Beverly Hills sewer rehab, and $8.2 million for Houston's sewer systems.

Moreover, the energy space has been a good one for equipment and services companies. Willbros Group (NYSE: WG  ) has seen increased demand for its pipeline construction and maintenance services show up in its revenue growth, even though the company isn't profitable. Similarly, C&J Energy Services (NYSE: CJES  ) has capitalized on the need for hydraulic fracturing equipment, as oil and gas exploration and production companies pull out all the stops to boost output from their wells.

For Aegion to improve, it needs to keep capitalizing on the strength of the energy industry as well as capturing more municipal contracts as its sewer business picks up. By focusing on growth, Aegion could get at least part of the way toward perfection in the years to come.

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.

Aegion 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.

Click here to add Aegion 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. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. 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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