Has St. Joe 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 St. Joe (NYSE: JOE  ) 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 St. Joe.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-year annual revenue growth > 15%

(20.3%)

Fail

 

1-year revenue growth > 12%

(16%)

Fail

Margins

Gross margin > 35%

33.9%

Fail

 

Net margin > 15%

(229.8%)

Fail

Balance sheet

Debt to equity < 50%

5.4%

Pass

 

Current ratio > 1.3

5.59

Pass

Opportunities

Return on equity > 15%

(43.7%)

Fail

Valuation

Normalized P/E < 20

266.11

Fail

Dividends

Current yield > 2%

0%

Fail

 

5-year dividend growth > 10%

0%

Fail

       
 

Total score

 

2 out of 10

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

Since we looked at St. Joe last year, the company has given back both points it gained from 2011 to 2012. But shareholders haven't really minded, because the stock has risen almost 40% in the past year.

St. Joe is a real estate development company with extensive land holdings in Florida. In recent years, it has been a hotbed of controversy as the focal point of a battle between major shareholder Bruce Berkowitz and short-seller David Einhorn.

In 2011, the stock remained in the middle of a tug of war between the two investing titans, with shares generally trending lower. But in the past year, things have started looking up for the company, with some asset sales leading to more optimism that St. Joe may be able to monetize its long-illiquid assets.

In what could be the last battle in the fight between Einhorn and Berkowitz, a federal appeals court ruled earlier this week against shareholders in a securities fraud lawsuit against St. Joe. Investors had argued that Einhorn's report included private information that he used as a basis to sell stock short before making it public. The court found that Einhorn merely repackaged public information, and therefore that St. Joe wasn't liable for failing to disclose it.

For St. Joe to improve, it needs to cash in on any upturn in the real-estate market it can get. Only by boosting revenue and profits does St. Joe have any hope of getting 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.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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


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

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: 2282796, ~/Articles/ArticleHandler.aspx, 12/21/2014 7:46:16 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