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 Coca-Cola Hellenic (NYSE: CCH ) 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 Coca-Cola Hellenic.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||3.4%||Fail|
|1-Year Revenue Growth > 12%||0.6%||Fail|
|Margins||Gross Margin > 35%||37.4%||Pass|
|Net Margin > 15%||3.6%||Fail|
|Balance Sheet||Debt to Equity < 50%||76.7%||Fail|
|Current Ratio > 1.3||1.04||Fail|
|Opportunities||Return on Equity > 15%||8.5%||Fail|
|Valuation||Normalized P/E < 20||17.99||Pass|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||2 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
With only two points, Coca-Cola Hellenic clearly faces some problems. Being in the middle of a huge economic crisis isn't the best environment for any company, and the Greek bottler has lost more than a third of its share value over the past year in the midst of Greece's sovereign debt woes.
Coca-Cola (NYSE: KO ) has done a great job marketing its product around the world, which sets the stage for bottlers to jump on its bandwagon and profit. We've seen that model work countless times, with the long-term success of Coca-Cola Enterprises (NYSE: CCE ) in western Europe, Coca-Cola Bottling (Nasdaq: COKE ) in portions of the U.S., and Coca-Cola FEMSA (NYSE: KOF ) in Mexico and Central and South America.
But Coca-Cola Hellenic's territory includes a number of areas facing troubled economic conditions. Italy and Greece in particular have seen huge pressures from the European debt crisis. But the company also has exposure to developing markets like Poland as well as emerging opportunities in Russia, the Ukraine, and Nigeria. Given that Coke consumption is a lot lower in those emerging areas, the growth prospects are far greater there.
Lately, the bottler has faced some unique challenges. A particularly bad winter hurt sales in the first quarter, and rising input costs have hurt Coca-Cola Hellenic's margins. The company has tried to make the best of falling volumes by increasing sales of single-serve bottles, but it still faces a slow sales environment.
Nevertheless, for Coca-Cola Hellenic to improve, it merely needs to see some of the gloom and doom in Europe lift. With many investors incorrectly pegging the company as a pure Greek play, strength in its other markets could go a long way toward bringing Coca-Cola Hellenic closer to perfection in the years ahead.
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 the best investments from the rest.
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