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 Coffee Holding
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 Coffee Holding.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||28%||Pass|
|1-Year Revenue Growth > 12%||52.7%||Pass|
|Margins||Gross Margin > 35%||5.1%||Fail|
|Net Margin > 15%||0.5%||Fail|
|Balance Sheet||Debt to Equity < 50%||5.8%||Pass|
|Current Ratio > 1.3||3.50||Pass|
|Opportunities||Return on Equity > 15%||4.8%||Fail|
|Valuation||Normalized P/E < 20||52.83||Fail|
|Dividends||Current Yield > 2%||1.7%||Fail|
|5-Year Dividend Growth > 10%||0%*||Fail|
|Total Score||4 out of 10|
Source: S&P Capital IQ. Total score = number of passes. *Since initiating a regular dividend in July 2010.
With four points, Coffee Holding could use a little pick-me-up. The stock has also gotten cold and bitter, with about a 20% drop in the past year.
Coffee Holding is benefiting from the current craze in the coffee industry. As a wholesale roasting company for both branded and private-label coffee, Coffee Holding does a huge amount of business with Green Mountain Coffee Roasters
But with Peet's Coffee & Tea
The big question, though, is whether forward earnings estimates are accurate. The consensus calls for earnings of more than $1 per share in fiscal 2013, giving Coffee Holding a forward P/E of less than 7. With Starbucks
For Coffee Holding to improve, it simply needs to keep on its growth trajectory and let rising earnings catch up with the stock. It's a long way from perfection, but Coffee Holding could give your portfolio a big jolt if things work out well.
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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