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 Agrium (NYSE: AGU) 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 Agrium.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 26.1% Pass
  1-Year Revenue Growth > 12% 15.2% Pass
Margins Gross Margin > 35% 25.2% Fail
  Net Margin > 15% 6.8% Fail
Balance Sheet Debt to Equity < 50% 47.4% Pass
  Current Ratio > 1.3 1.63 Pass
Opportunities Return on Equity > 15% 14.7% Fail
Valuation Normalized P/E < 20 23.48 Fail
Dividends Current Yield > 2% 0.1% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   4 out of 10

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

With just four points, Agrium falls short of perfection. Despite being in an industry with huge potential, Agrium doesn't stack up particularly well against its competitors.

Agrium produces fertilizer, seeds, and pesticides and other crop protection products. With food prices on the rise, the agricultural sector is a hot place to be right now, and Agrium appears well-poised to take advantage of the trend going forward.

The problem that Agrium investors face is that the company's rivals are doing a better job of converting on this opportunity. Both PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS) have big advantages in margins and return on equity, which fall through to the bottom line for shareholders. And even though both PotashCorp and Mosaic carry pricey valuations, you can get comparable financials from CF Industries (NYSE: CF) at a lower earnings multiple.

If the trend toward agricultural productivity continues, Agrium may well see its shares rise with the rest of the sector. But at least from a fundamental standpoint, you may do better by going with the competition.

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.

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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.