Is Corning Incorporated Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Corning Incorporated (GLW -0.54%) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Corning's story, and we'll be grading the quality of that story in several ways:

• Growth: Are profits, margins, and free cash flow all increasing?
• Valuation: Is share price growing in line with earnings per share?
• Opportunities: Is return on equity increasing while debt to equity declines?
• Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Corning's key statistics:

GLW Total Return Price data by YCharts.

Source: YCharts. *Period begins at end of Q4 2010.

GLW Return on Equity (TTM) data by YCharts.

Source: YCharts. *Period begins at end of Q4 2010.

How we got here, and where we're going
We looked at Corning last year, and it has lost three passing grades from that assessment to this one to finish up with a mediocre three out of nine possible passing grades. One of those passing grades was only awarded because of a technicality -- the decline in Corning's net income exceeded the decline in its free cash flow, but no investor should be cheered by a company reporting ongoing declines on both metrics. Will Corning be able to turn around its declining margins in 2014, or will the specialty glass maker wind up with some irreparable cracks in its future? Let's dig a little deeper to find out.

Corning's market-topping fourth-quarter revenue and earnings per share weren't appreciated much by investors, who have been more concerned about ongoing margin shrinkage. Although Corning realized strong growth in its fiber optics and environmental technologies segments, reduced demand for Gorilla Glass from smartphone and tablet manufacturers has hurt on the company's profits. Management also expects LCD glass prices to further decline in 2014, and since this segment has historically been the company's best moneymaker, it's easy to see why investors might feel skittish.

To counteract these headwinds, Corning plans to expand Gorilla Glass into the automotive and architectural markets, while growing demand for heavy-duty diesel vehicles in Europe and China should drive modest organic sales growth in its environmental business. Intel (INTC 1.77%) recently began shipping ultra-fast fiber optic cables, developed in partnership with Corning, which are capable of handling tight bends without losing a signal, and this should also help Corning improve its share in that particular segment.

Corning recently began a long-term LCD display glass supply agreement with electronics giant Samsung, scheduled to run through 2023. This new Corning-Samsung partnership could also result in shared technological innovation, which would ultimately (hopefully) result in the development and commercialization of new glass products. However, Corning may already face a major threat to its long-term profitability from early mobile partner Apple (AAPL 0.52%), which was Corning's first customer for Gorilla Glass. Apple recently filed a patent that involves methods of attaching high-quality sapphire substrates to other materials. Apple also announced a $578 million deal with GT Advanced Technologies (NASDAQ: GTAT) to build a sapphire-making facility in Arizona. My fellow Fool David Eller notes that GT recently developed a method for cutting extra-thin layers of sapphire, which can then be used as a laminate atop mobile device screens.

However, Corning Senior Vice President Tony Tripeny boasts of several Corning advantages over sapphire crystal, which is 1.6 times heavier, and ten times as expensive, as Gorilla Glass. These current drawbacks haven't deterred Apple, which seems determined to switch from Gorilla Glass to sapphire if GT's recent purchase of 518 sapphire furnaces and chamber systems are any indication. This number of furnaces could produce anywhere from 100 million to 200 million five-inch sapphire displays per year. GT's also claimed that the cost to manufacture sapphire displays has been brought down to $12 apiece, which should ultimately decrease to $10 or less with further technological advancements.

Putting the pieces together
Today, Corning has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.