Is Sify Technologies 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 Sify Technologies (Nasdaq: SIFY  ) 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 Sify Technologies.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-Year Annual Revenue Growth > 15%

8.4%

Fail

 

1-Year Revenue Growth > 12%

14.5%

Pass

Margins

Gross Margin > 35%

38%

Pass

 

Net Margin > 15%

(4.7%)

Fail

Balance Sheet

Debt to Equity < 50%

46.4%

Pass

 

Current Ratio > 1.3

0.99

Fail

Opportunities

Return on Equity > 15%

(11.8%)

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.

With only three points, Sify Technologies doesn't connect investors to perfection. The Indian Internet company has plenty of potential, but so far, it's not firing on all cylinders.

Sify provides Internet services to the fast-growing Indian market. With questions about whether economic expansion in the emerging market nations can continue at its blistering pace, small Indian companies like Sify tend to move up and down on little company-specific news. Unlike more established IT service providers Infosys (Nasdaq: INFY  ) and Wipro (NYSE: WIT  ) , Sify has more of a consumer focus -- and greater stock price volatility.

After a recent slump, Sify shares jumped more than 60% after the company announced quarterly results earlier this week. Revenue rose modestly and the company cut its quarterly net loss in half as cost-cutting led to EBITDA figures that tripled year-ago levels. The news also sent Rediff.com (Nasdaq: REDF  ) higher.

It's hard to argue against Sify's potential. Delivering on that potential, though, has proven to be a tough challenge for the company. If it can reach profitability while sustaining strong growth, though, Sify could quickly get a lot closer to perfection in the 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.

Click here to add Sify Technologies 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."

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. 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 Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (2)

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  • Report this Comment On November 01, 2011, at 10:45 PM, highflyer33463 wrote:

    Sify jumped because window dressing and short covering ,then they sold into afterhours and premarket.Yes it would be great to have 30%profit margins but india just starting to ease up on regulation and if you want your perfect stock it will already be 60 dollars.

  • Report this Comment On November 02, 2011, at 11:15 AM, starksbaddin wrote:

    How can anyone trust this company? Mgmt stole half the business without reporting it. Also dropped a reputable auditor without any explanation.....

    at $5.00 the current market cap is $900 million. Six times revenue with only modest growth rate on a small base...

    This is the ulimate short. I don't care if the india economy is growing. The only thing growing here is mgmt's pocket book at the expense of shareholders.

  • Report this Comment On November 02, 2011, at 11:49 AM, highflyer33463 wrote:

    Has been reported for long time-go nasdaq sec filings latest 6k released again and again and again till wall street journal stops working with their buddys shorting it

  • Report this Comment On November 02, 2011, at 11:54 AM, highflyer33463 wrote:

    Sify-lowest bidder for govt contract at (livemint.com) possible 170 million contract at least someone digs deeper in research than Rolfe Winkler at Wall st Journal

  • Report this Comment On November 02, 2011, at 12:02 PM, highflyer33463 wrote:

    Some ipo's bid up to over 50x's sells by wallstreet

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