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 Progressive (NYSE: PGR) 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 Progressive.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 0.9% Fail
  1-Year Revenue Growth > 12% 2.7% Fail
Margins Gross Margin > 35% 11.5% Fail
  Net Margin > 15% 7.1% Fail
Balance Sheet Debt to Equity < 50% 32.4% Pass
  Current Ratio > 1.3 0.83 Fail
Opportunities Return on Equity > 15% 18.1% Pass
Valuation Normalized P/E < 20 13.91 Pass
Dividends Current Yield > 2% 1.95% Fail
  5-Year Dividend Growth > 10% 67.8% Pass
  Total Score   4 out of 10

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

With a score of 4, Progressive doesn't reach perfection. But the insurance company isn't alone in suffering through the recent recession.

Insurance companies generally have faced a number of big headwinds in recent years. Those that invested in stocks took big hits during the bear market in 2008 and 2009. But even as the stock market has recovered, Progressive and Allstate (NYSE: ALL) now have to deal with their exposure to the municipal bond market, which has been under attack lately.

Progressive has done some interesting things to try to set it apart from the competition. One of the latest involves offering customers discounts of up to 30% if they agree to a monitoring device that measures driving time, speed, and braking.

From a financial standpoint, Progressive produces strong returns on equity that exceed those of Travelers (NYSE: TRV), Chubb (NYSE: CB), and Allstate. But Progressive doesn't top every category; Swiss insurer ACE Limited (NYSE: ACE) has better margins and faster revenue growth in recent years, and it pays a slightly higher dividend with a lower valuation.

Progressive may not be perfect, but it still has some things going for it. Given how hard the insurance industry has struggled lately, Progressive has done a good job of limiting its downside.

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 Progressive 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. 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.