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 Boston Scientific (NYSE:BSX) 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 Boston Scientific.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-year annual revenue growth > 15%

(2.5%)

Fail

 

1-year revenue growth > 12%

(6.4%)

Fail

Margins

Gross margin > 35%

65.4%

Pass

 

Net margin > 15%

(55.3%)

Fail

Balance sheet

Debt to equity < 50%

62.3%

Fail

 

Current ratio > 1.3

1.75

Pass

Opportunities

Return on equity > 15%

(43.8%)

Fail

Valuation

Normalized P/E < 20

18.87

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 Boston Scientific last year, the company has given back one of the three points it gained from 2010 to 2011, as its debt-to-equity rose sharply. The stock, though, has managed a modest rise of about 10% over the past year.

Boston Scientific makes medical devices, ranging from stents and catheters to heart products like defibrillators. The industry has been a hotbed of competitive battles, as numerous players seek to defend their turf while expanding their reach. For instance, in a catheterized process known as renal denervation, which could potentially serve a 100 million patient market worldwide, Medtronic (NYSE:MDT) and St. Jude Medical (NYSE:STJ) lead the way with their own proprietary systems, but Boston Scientific bought Vessix Vascular early last month to stake its claim in the hot market.

Even in coronary stents, where Boston Scientific has had a big edge, the company faces competition. Abbott Labs (NYSE:ABT) is moving quickly to get its next-generation Absorb bioabsorbable stent through its pipeline to compete against Boston Scientific's Synergy stent. Whichever is first to market in the U.S. could have a huge advantage, and with Abbott having been first to the mark in Europe, Boston Scientific needs to do everything it can to be the winner this time around.

Unfortunately, Boston Scientific isn't starting from a position of strength. In its most recent quarter, sales plunged, with its interventional cardiology segment seeing a 20% decline and cardiac rhythm management revenue dropping 8%. Given that those two divisions make up half Boston Scientific's sales, that's bad news, and guidance for the current quarter hasn't been encouraging either.

For Boston Scientific to turn things around, it needs to get some of its many recent acquisitions fully integrated and producing better results. Otherwise, Boston Scientific may never reach perfection.

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.

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Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of Medtronic and St. Jude Medical and has options positions on Medtronic. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.