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 and then decide whether OmniVision Technologies
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. Although 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 a 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.
- Moneymaking 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 OmniVision Technologies.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-Year Annual Revenue Growth > 15% | 13.1% | Fail |
| 1-Year Revenue Growth > 12% | 59.9% | Pass | |
| Margins | Gross Margin > 35% | 27.8% | Fail |
| Net Margin > 15% | 11.0% | Fail | |
| Balance Sheet | Debt to Equity < 50% | 7.3% | Pass |
| Current Ratio > 1.3 | 5.38 | Pass | |
| Opportunities | Return on Equity > 15% | 15.4% | Pass |
| Valuation | Normalized P/E < 20 | 32.49 | Fail |
| Dividends | Current Yield > 2% | 0.0% | Fail |
| 5-Year Dividend Growth > 10% | 0.0% | Fail | |
| Total Score | 4 out of 10 |
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
With a score of just 4 points, OmniVision Technologies isn't anywhere near perfection. Although the company has had success in getting into the smartphone market, it's uncertain whether it will be able to sustain its place on the most popular platforms going forward.
OmniVision specializes in making camera chips for digital devices. The company has had great success in light of the smartphone explosion, with non-GAAP earnings in its most recent quarter quadrupling over year-ago levels. With a customer list that includes Apple's
But recently, questions have arisen about whether OmniVision will keep its place with the iPhone line going forward. In April, Sony's
Still, OmniVision is making all the right moves. It recently bought a portfolio of 850 image-sensor patents from Eastman Kodak
With a fairly high valuation and no dividend, OmniVision doesn't give investors everything they'd want. But if it can hold its place in the smartphone revolution, OmniVision could easily look a lot more like a perfect stock in the near future.
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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Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our 13 Steps to Investing Foolishly.
