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 whether Hillenbrand (NYSE: HI) 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 Hillenbrand.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 3.7% Fail
  1-Year Revenue Growth > 12% 24.0% Pass
Margins Gross Margin > 35% 41.6% Pass
  Net Margin > 15% 11.3% Fail
Balance Sheet Debt to Equity < 50% 105.7% Fail
  Current Ratio > 1.3 3.24 Pass
Opportunities Return on Equity > 15% 24.8% Pass
Valuation Normalized P/E < 20 13.60 Pass
Dividends Current Yield > 2% 3.5% Pass
  5-Year Dividend Growth > 10% NM NM
  Total Score   6 out of 9

Source: Capital IQ, a division of Standard and Poor's. NM = not meaningful; Hillenbrand started paying a dividend three years ago. Total score = number of passes.

With six points, Hillenbrand isn't perfect, but it has some attractive traits. The company is an industry leader in a business none of us can avoid in the long run.

As a leader in the funeral services industry, Hillenbrand isn't on most investors' radar screens. But there's no denying that the company has been impressively profitable, with good returns on equity combined with a cheap valuation that seems to reflect its presence in an industry that few people really want to think about.

Moreover, Hillenbrand has some advantages over its peers in the industry. Service Corp. International (NYSE: SCI) and Stewart Enterprises (Nasdaq: STEI) both have much smaller dividend yields, while trading at much higher multiples to earnings. Meanwhile, Matthews International (Nasdaq: MATW) has a similar valuation, but can't even crack the 1% mark on its dividend yield.

Oddly, though, Hillenbrand moved in an unexpected direction last year when it bought materials-processing equipment-maker K-Tron International. K-Tron's reliance on coal-based electricity generation is totally unrelated to Hillenbrand's core business, making some investors scratch their heads.

Hillenbrand has a lot going for it, although high debt levels don't give it the latitude to make strategic errors in judgment. Despite a good score, if Hillenbrand loses focus on the core business that has helped it thrive over the years, it will look a lot less like a perfect stock in the future.

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 Hillenbrand 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.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Fool owns shares of Hillenbrand, which is a Motley Fool Income Investor choice. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.