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 SINA (Nasdaq: SINA ) 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 SINA.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||16.5%||Pass|
|1-Year Revenue Growth > 12%||13.0%||Pass|
|Margins||Gross Margin > 35%||57.3%||Pass|
|Net Margin > 15%||(6.8%)||Fail|
|Balance Sheet||Debt to Equity < 50%||1.9%||Pass|
|Current Ratio > 1.3||5.49||Pass|
|Opportunities||Return on Equity > 15%||(2.2%)||Fail|
|Valuation||Normalized P/E < 20||103.81||Fail|
|Dividends||Current Yield > 2%||0.0%||Fail|
|5-Year Dividend Growth > 10%||0.0%||Fail|
|Total Score||5 out of 10|
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
With just five points, SINA finishes in the middle of the road. But the company that many see as China's answer to Twitter is hoping for a much bigger future.
Those who are familiar with Facebook and Twitter should really know about SINA. Its Weibo service isn't as large as either of its U.S. competitors, but with 140 million registered users, the company has a larger audience than LinkedIn (NYSE: LNKD ) or Renren (NYSE: RENN ) . The company is reportedly considering a push into the U.S. market.
Of course, SINA won't have smooth sailing even in its home market. Back in April, Facebook's Mark Zuckerberg discussed a partnership with SINA rival Baidu (Nasdaq: BIDU ) to rollout a China-specific version of Facebook.
On the other hand, SINA has more than just microblogging going for it. It's a major dot-com portal in its own right, and it's also dabbling in areas like video -- which may well end up proving a challenge for newly public Youku.com (NYSE: YOKU ) .
If the controversy over Chinese small caps has you worried, you should feel much more comfortable with SINA. It's far from perfect, but it's making the right moves in its quest for stronger profitability.
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.
Click here to add SINA to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.
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."