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 Provident Energy Trust (NYSE: PVX) 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 Provident.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 6.7% fail
  1-Year Revenue Growth > 12% 8.5% fail
Margins Gross Margin > 35% 22.6% fail
  Net Margin > 15% (21.3%) fail
Balance Sheet Debt to Equity < 50% 98.6% fail
  Current Ratio > 1.3 0.85 fail
Opportunities Return on Equity > 15% (5.1%) fail
Valuation Normalized P/E < 20 NM fail
Dividends Current Yield > 2% 9.1% pass
  5-Year Dividend Growth > 10% (34.0%) fail
       
  Total Score   1 out of 10


Source: Capital IQ, a division of Standard and Poor's. NM = not meaningful; Provident had negative earnings during the period. Total score = number of passes.

Provident Energy Trust only manages to score a single point. That's disappointing in light of rising energy prices, and despite having to deal with some one-time legal issues, Provident doesn't fare as well as some of its competitors.

Provident is one of many Canadian companies originally set up as royalty trusts, also known as Canroys. Along with fellow Canroys Penn West Energy (NYSE: PWE), Pengrowth Energy (NYSE: PGH), and Enerplus Resources (NYSE: ERF), Provident had to convert to corporate status due to a change in Canadian tax law.

Unfortunately, the legal change is likely to force Provident and its peers to cut dividends. But the company projects that Provident's yield will still be attractive.

Nevertheless, when you put Provident up against the three competitors mentioned above, the company doesn't come out looking good. Provident has the highest debt levels of the four, and is the only one to have negative net margins and returns on equity. It has the highest yield, but some of the other companies have been more proactive about reining in dividends before the 2011 tax laws took effect.

Not only does Provident fall short of perfection, it doesn't come close to reaching the top of its industry. If the former Canroys sound like promising investment ideas, you may want to consider some of Provident's competitors instead.

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 Provident Energy Trust to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. 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.