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Has Polypore International Become the Perfect Stock?

Dan Caplinger
July 24, 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 Polypore International (NYSE: PPO  ) 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 Polypore International.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 8.8% Fail
  1-Year Revenue Growth > 12% 14.3% Pass
Margins Gross Margin > 35% 41.8% Pass
  Net Margin > 15% 13.1% Fail
Balance Sheet Debt to Equity < 50% 133.6% Fail
  Current Ratio > 1.3 3.52 Pass
Opportunities Return on Equity > 15% 20.8% Pass
Valuation Normalized P/E < 20 18.53 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   5 out of 10

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

Since we looked at Polypore International last year, the company has boosted its score by a point. But the stock hasn't shared that success, with the share price having fallen almost 50% in the past year.

Polypore's business falls into two main segments: It makes a key component for both lead-acid and lithium batteries, and it makes membranes for applications such as filtering and oxygenating blood. With the big rise in electric vehicles, not only from specialty carmaker Tesla Motors (Nasdaq: TSLA  ) but also mainstream producers General Motors (NYSE: GM  ) and Ford (NYSE: F  <