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Has Pitney Bowes Become the Perfect Stock?

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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 Pitney Bowes (NYSE: PBI  ) 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 Pitney Bowes.


What We Want to See


Pass or Fail?


5-year annual revenue growth > 15%




1-year revenue growth > 12%




Gross margin > 35%




Net margin > 15%



Balance sheet

Debt to equity < 50%




Current ratio > 1.3




Return on equity > 15%




Normalized P/E < 20




Current yield > 2%




5-year dividend growth > 10%




Total score


4 out of 10

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

Since we looked at Pitney Bowes last year, the company has earned an extra point, due largely to its shareholder equity becoming significant enough to meet the return-on-equity standard. Investors haven't been too happy with the stock, though, which has given up 40% of its share price over the past year.

Pitney Bowes has been a conundrum for investors for a long time. On one hand, its impressive dividend yield tops the S&P 500, and its status as a Dividend Aristocrat remains unchallenged with 30 straight years of annual payout increases. Yet given the company's reputation as a postage-meter machine expert, concerns that (NASDAQ: STMP  ) and Newell Rubbermaid (NYSE: NWL  ) have taken away a big part of its former core business abound. Moreover, Constant Contact (NASDAQ: CTCT  ) and other small companies are trying to provide value-added services to revolutionize email communications in the same way that bulk mail helped revolutionize mailing and vaulted Pitney into prominence decades ago.

But Pitney Bowes isn't out of ideas yet. Its drive to become a broader-line business services company has had some successes, most notably its partnership with Facebook (NASDAQ: FB  ) to provide geocoding software for the social-media giant. Still, the competition there will be fierce as well, as big data behemoths seek to claim their share of the growing industry.

For Pitney Bowes to improve, it needs to turn around its revenue contraction and find ways to broaden its business. Otherwise, its slow slide may well continue in 2013 and beyond.

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 the best investments from the rest.

Dividend stocks have a role to play in your portfolio, but you should also give yourself the chance to score some big share-price gains. Motley Fool co-founder David Gardner has found market-trouncing picks throughout his investing career by digging up unknown companies with revolutionary potential to lead their industries to a new paradigm. Find out more about how David discovers his winners; click here to get instant access to a personal tour behind his Supernova service.

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

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5/26/2016 4:00 PM
PBI $18.37 Up +0.09 +0.49%
Pitney Bowes, Inc. CAPS Rating: ***
CTCT $0.00 Down +0.00 +0.00%
Constant Contact CAPS Rating: *
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