Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Sysco (NYSE: SYY) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • 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 don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. 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 Sysco.

Factor What We Want to See Actual Pass or Fail?
Growth 5-year annual revenue growth > 15% 4.2% Fail
  1-year revenue growth > 12% 1.1% Fail
Margins Gross margin > 35% 19.1% Fail
  Net margin > 15% 3.2% Fail
Balance sheet Debt to equity < 50% 64.8% Fail
  Current ratio > 1.3 1.69 Pass
Opportunities Return on equity > 15% 32.4% Pass
Valuation Normalized P/E < 20 14.69 Pass
Dividends Current yield > 2% 3.5% Pass
  5-year dividend growth > 10% 11.3% Pass
  Total Score   5 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

With a score of 5, Sysco puts in a solid performance. Especially considering the nature of the food services industry, the company actually does reasonably well.

Even as the giant in food services, Sysco can't crank out the high margins that other industries enjoy. Moreover, you won't find huge growth rates either; even much smaller competitors United Natural Foods (Nasdaq: UNFI) and Spartan Stores (Nasdaq: SPTN), which arguably have much more room to grow than Sysco, haven't put together any better growth recently.

The big advantage Sysco has is in its returns on equity. That provides it with the money it needs to reinvest in its own business. In its most recent quarterly report, Sysco announced plans to up its capital investment to between $700 million and $750 million in the coming year, up 17% to 25% from last year's levels. Yet it also has the capacity to pay a strong dividend that's grown significantly in recent years. Rivals Core-Mark Holding (Nasdaq: CORE) and Nash Finch (Nasdaq: NAFC) simply don't have the resources to compete, giving Sysco a moat that's unlikely to be bridged anytime soon.

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.