Has ManpowerGroup 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 ManpowerGroup (NYSE: MAN  ) 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 ManpowerGroup.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

1.4%

Fail

 

1-Year Revenue Growth > 12%

(3.6%)

Fail

Margins

Gross Margin > 35%

16.7%

Fail

 

Net Margin > 15%

1%

Fail

Balance Sheet

Debt to Equity < 50%

29.2%

Pass

 

Current Ratio > 1.3

1.41

Pass

Opportunities

Return on Equity > 15%

8.2%

Fail

Valuation

Normalized P/E < 20

10.99

Pass

Dividends

Current Yield > 2%

2.3%

Pass

 

5-Year Dividend Growth > 10%

5.3%

Fail

       
 

Total Score

 

4 out of 10

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

Since we looked at ManpowerGroup last year, the company has dropped a point, as revenue has reversed direction and contracted since last year. The stock hasn't done too badly, though, rising more than 10% over the past year.

With high unemployment having held sway over the U.S. economy for years, ManpowerGroup's services have never been more important. The company provides recruiting services for both permanent positions as well as temporary employment. Unlike Dice Holdings (NYSE: DHX  ) , which specializes in jobs within certain industries, ManpowerGroup offers jobs in a wide range of sectors.

But ManpowerGroup faces competition from several directions. On one hand, Robert Half International and Kelly Services (Nasdaq: KELYA  ) have similar focuses as ManpowerGroup, offering traditional job placement services. But arguably, the bigger threat will come from online job-posting services like Monster Worldwide (NYSE: MWW  ) , which can offer less expensive solutions for businesses seeking workers. Also, with the rise of social media giant LinkedIn (NYSE: LNKD  ) , ManpowerGroup could be facing a transformation in the way that workers connect to new employment opportunities.

In its most recent quarter, ManpowerGroup gave investors better than expected numbers, even if they looked somewhat ugly. Sales dropped 11% and earnings fell by 21%, but those figures topped analysts' estimates. Moreover, the company gave favorable guidance about the current quarter, providing a range above previous expectations.

For ManpowerGroup to improve, it needs to get sales moving back in the right direction. Without more business, it's going to be hard for ManpowerGroup to produce the numbers it needs to get closer to 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.

ManpowerGroup is relying on a strong recovery to boost its prospects going forward. To learn more about a few ETFs that have great promise for delivering profits to shareholders in a recovering global economy, check out The Motley Fool's special free report, 3 ETFs Set to Soar During the Recovery. Just click here to access it now.

Click here to add ManpowerGroup to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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