Has Sanofi 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 Sanofi (NYSE: SNY  ) 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 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 Sanofi.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 3.5% Fail
  1-Year Revenue Growth > 12% 9.4% Fail
Margins Gross Margin > 35% 70.3% Pass
  Net Margin > 15% 16.2% Pass
Balance Sheet Debt to Equity < 50% 27.4% Pass
  Current Ratio > 1.3 1.53 Pass
Opportunities Return on Equity > 15% 10.8% Fail
Valuation Normalized P/E < 20 13.61 Pass
Dividends Current Yield > 2% 4.7% Pass
  5-Year Dividend Growth > 10% 8.7% Fail
       
  Total Score   6 out of 10

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

Since we looked at Sanofi last year, the company has seen its score drop by a point. The company's dividend growth has slowed just a bit this year, but it still has a formidable yield, and the shares have done reasonably well in the past year.

Overall, Sanofi has done a reasonable job keeping its sales figures up despite some big challenges. Several of its drugs have seen major competition open up, with its Taxotere prostate cancer drug seeing big sales declines due in part to the emergence of Dendreon's (Nasdaq: DNDN  ) rival treatment, Provenge. Similarly, sales of Sanofi's blood clot preventer Lovenox have declined as Momenta Pharmaceuticals (Nasdaq: MNTA  ) has had its own generic version. Even worse is this year's loss of patent protection on blood thinner Plavix.

Sanofi's answer to those challenges has been its buyout of Genzyme. The pickup was largely motivated by orphan-drug opportunities. Orphan drugs have a limited number of patients who need them, but they can still be extremely quite lucrative. Certainly, the acquisition route to bolster pipelines has become increasingly popular lately, as Gilead Sciences (Nasdaq: GILD  ) spent $11 billion for Pharmasset. Although Gilead got an entry into the red-hot market for hepatitis C drugs, Sanofi may have gotten a better deal.

For Sanofi to get closer to perfection, it simply needs its long-term strategy to bear fruit. Investors will get a nice dividend while they wait to see how the company does, but if Sanofi can't make its acquisition work in the long run, then its importance in the pharmaceutical industry could start to fade.

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.

Sanofi may not be a perfect stock, but we've got some ideas you may like better. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

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

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Momenta Pharmaceuticals and Dendreon. Motley Fool newsletter services have recommended buying shares of Momenta Pharmaceuticals and Gilead Sciences. 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 (0) | Recommend This Article (2)

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: 1792993, ~/Articles/ArticleHandler.aspx, 9/1/2014 10:37:08 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