Has Weatherford International 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 Weatherford International (NYSE: WFT  ) 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 Weatherford International.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

14.8%

Fail

 

1-Year Revenue Growth > 12%

27.8%

Pass

Margins

Gross Margin > 35%

25.6%

Fail

 

Net Margin > 15%

2.5%

Fail

Balance Sheet

Debt to Equity < 50%

79.4%

Fail

 

Current Ratio > 1.3

1.67

Pass

Opportunities

Return on Equity > 15%

3.8%

Fail

Valuation

Normalized P/E < 20

15.89

Pass

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.

Since we looked at Weatherford International last year, the company hasn't improved on its three-point score. The shares have gotten cheaper, though, with a 10% loss for the stock over the past year helping to make its valuation more attractive.

Weatherford is an oil services company, and in general, that's been a profitable place to be over the past several years. As opportunities for new drilling projects have popped up both in the U.S. and around the world, industry giants Schlumberger (NYSE: SLB  ) and Halliburton (NYSE: HAL  ) have capitalized by providing cutting-edge technology for discovery, testing, drilling, and production, while National Oilwell Varco (NYSE: NOV  ) has become a one-stop shop for industry players from ultra-deepwater rigs to land-based shale gas operations.

But Weatherford hasn't been able to participate fully in the energy services boom. Like Baker Hughes (NYSE: BHI  ) , Weatherford suffers from being smaller than Halliburton and Schlumberger, but even Baker Hughes has been able to post higher-margin growth than Weatherford.

One reason for the drop in Weatherford's stock price is the controversy over its financial statements. In February, the company said it would have to restate its 2009 and 2010 financials, sending the shares plunging 13%. Then, in its most recent quarterly report, Weatherford disappointed investors as it estimated potential settlements for investigations into its international operations at a whopping $100 million. Additional tax expenses of $41 million also raised a lot of uncertainty about the company's finances.

For Weatherford to improve, it needs to get its controversies behind it and start moving forward. If it can start providing more of the industry's innovations, then Weatherford could start rising toward perfection in the near future.

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.

Weatherford International has plenty of potential, but why not invest in the one company in the energy sector that can hold fast no matter what oil costs? Find out why this company is "The Only Energy Stock You'll Ever Need" in the Motley Fool's popular free report. Click here for the inside scoop while it lasts.

Click here to add Weatherford International 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 National Oilwell Varco. Motley Fool newsletter services have recommended buying shares of Halliburton and National Oilwell Varco. 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.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2047822, ~/Articles/ArticleHandler.aspx, 10/20/2014 5:46:20 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement