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Has Zoltek Become the Perfect Stock?

Dan Caplinger
June 1, 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 Zoltek (Nasdaq: ZOLT  ) 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 Zoltek.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 8.4% Fail
  1-Year Revenue Growth > 12% 22.5% Pass
Margins Gross Margin > 35% 20.1% Fail
  Net Margin > 15% 9.2% Fail
Balance Sheet Debt to Equity < 50% 3.4% Pass
  Current Ratio > 1.3 4.88 Pass
Opportunities Return on Equity > 15% 5.5% Fail
Valuation Normalized P/E < 20 29.88 Fail
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10%                     0% Fail
  Total Score   3 out of 10

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

Since we looked at Zoltek last year, the company has lost a point. Although the company has returned to profitability, slower growth hurt its score, and a 25% drop in its stock price over the past year hasn't made investors very happy either.

Wind energy has seen strong growth in recent years, with big conglomerates General Electric (NYSE: GE  ) and Siemens (NYSE: SI  ) turning a major part of their focus to alternative energy in general and