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 NII Holdings (NASDAQ:NIHD) 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 NII Holdings.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-year annual revenue growth > 15%

15.4%

Pass

 

1-year revenue growth > 12%

(6.8%)

Fail

Margins

Gross margin > 35%

58.1%

Pass

 

Net margin > 15%

(3.2%)

Fail

Balance sheet

Debt to equity < 50%

158%

Fail

 

Current ratio > 1.3

2.18

Pass

Opportunities

Return on equity > 15%

(6.4%)

Fail

Valuation

Normalized P/E < 20

NM

NM

Dividends

Current yield > 2%

0%

Fail

 

5-year dividend growth > 10%

0%

Fail

       
 

Total score

 

3 out of 9

Source: S&P Capital IQ. NM = not meaningful due to negative earnings. Total score = number of passes.

Since we looked at NII Holdings last year, the company has dropped two points, going from a profit to a loss and seeing sales plunge. The stock has performed abominably in response, losing almost 75% of its value in the past year.

NII Holdings is a telecom company focused on Brazil and the greater Latin American market. In a licensing deal with what is now Sprint Nextel (NYSE:S), NII Holdings paid to use the Nextel brand name on a royalty-free basis.

In its most recent earnings report, NII Holdings disappointed investors by giving weak sales guidance for the 2013 fiscal year. More alarmingly, with subscriber-count growth expected only in mid-single-digits, the report suggests that NII Holdings hasn't been successful in catching up to America Movil (NYSE:AMX) and Telefonica (NYSE:TEF) in the highly competitive Latin American market. In addition, with NII Holdings resorting to a private placement of $750 million in debt priced at a whopping 11 3/8%, bond investors aren't too secure about its future prospects.

Unfortunately, a recent move to try to compete more effectively didn't pan out. NII Holdings had hoped to buy Unicel do Brasil, but the acquisition was blocked by the Brazilian Agency of Telecommunications, which instead will auction off Unicel's operating licenses later this year.

For NII Holdings to improve, it needs to find some way to reignite its revenue growth and return to profitability. Without that necessary ingredient, NII Holdings may never get any closer to 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 position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.