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 Boston Beer
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 Boston Beer.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-year annual revenue growth > 15% | 13.9% | Fail |
| 1-year revenue growth > 12% | 10.3% | Fail | |
| Margins | Gross margin > 35% | 55.3% | Pass |
| Net margin > 15% | 10.1% | Fail | |
| Balance sheet | Debt to equity < 50% | 0% | Pass |
| Current ratio > 1.3 | 1.70 | Pass | |
| Opportunities | Return on equity > 15% | 28.1% | Pass |
| Valuation | Normalized P/E < 20 | 23.63 | Fail |
| Dividends | Current yield > 2% | 0% | Fail |
| 5-year dividend growth > 10% | 0% | Fail | |
| Total Score | 4 out of 10 |
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
Boston Beer only manages to brew up a score of four. However, the maker of Sam Adams has bucked the trend in the beer industry with its niche craft offerings.
It's been a tough time for big beer producers. Both Anheuser-Busch InBev
But the story is very different among craft brewers. In 2010, craft-brew volume soared 11%. And although public craft brewers Boston Beer and Red Hook-maker Craft Brewers Alliance
Still, there may be clouds on the horizon. In its most recent quarter, Boston Beer missed earnings estimates by a wide margin, due largely to higher costs of marketing and promotion. But with the company maintaining its full-year guidance, the hit that shares took may be overblown.
Boston Beer has performed well financially in a tough market for its industry. If it can continue to capitalize on the trend toward smaller, better-brewed beer, then the stock could give shareholders a refreshing ride.
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 Boston Beer 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 ."
