The Motley Fool Previous Page

Has Ferrellgas Become the Perfect Stock?

Dan Caplinger
October 5, 2012

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 Ferrellgas (NYSE: FGP  ) 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 Ferrellgas.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 3.3% Fail
  1-Year Revenue Growth > 12% (3.5%) Fail
Margins Gross Margin > 35% 27.4% Fail
  Net Margin > 15% (0.5%) Fail
Balance Sheet Debt to Equity < 50% NM NM
  Current Ratio > 1.3 0.85 Fail
Opportunities Return on Equity > 15% NM NM
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 10.4% Pass
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   1 out of 7

Source: S&P Capital IQ. NM = not meaningful; Ferrellgas had negative earnings and shareholder equity net of minority interests as of its most recent report. Total score = number of passes.

Since we looked at Ferrellgas last year, the company has lost a point, as revenue shrank and profits went negative. The stock has also had its troubles, hugging the flat line over the past year.

Ferrellgas is the company behind the popular Blue Rhino line of propane tanks, which lets you buy or exchange tanks for your grill at grocery stores and other local retailers. Structured as a master limited partnership, Ferrellgas offers investors an amazing dividend yield of more than 10%, with payouts that have been stable for years.

But Ferrellgas stands out among its competition for a bad reason as well: debt. Competitors AmeriGas (NYSE: APU