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 BJ's Wholesale (NYSE: BJ) 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 BJ's Wholesale.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 6.6% Fail
  1-Year Revenue Growth > 12% 6.8% Fail
Margins Gross Margin > 35% 10.9% Fail
  Net Margin > 15% 0.9% Fail
Balance Sheet Debt to Equity < 50% 0.0% Pass
  Current Ratio > 1.3 1.31 Pass
Opportunities Return on Equity > 15% 11.4% Fail
Valuation Normalized P/E < 20 17.96 Pass
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   3 out of 10

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

BJ's Wholesale doesn't look perfect with just three points. But the company has attracted some attention lately from the deal-hungry private equity industry.

As a competing warehouse retailer, BJ's has consistently labored in the shadows of Costco (Nasdaq: COST) and Wal-Mart's (NYSE: WMT) Sam's Club. Even though its regional focus in the eastern part of the country should theoretically give it lower distribution costs than nationwide warehouse chains, BJ's has weaker margins than Costco and Wal-Mart and falls short of Costco on sales growth. It also doesn't pay a dividend, as Costco and Wal-Mart do.

Increasingly, BJ's has seen rumors that it has put itself up for sale. Private equity player Leonard Green offered to buy out the company last November, and ever since, takeover speculation has boosted the shares.

Often, shareholders of popular takeover targets feel remorse over not being able to hold onto their stock after a buyout. Here, though, BJ's simply hasn't become as profitable as its direct competitors nor more mainstream retailers like Target (NYSE: TGT). Investors should welcome a buyout with open arms as their best exit strategy from a stock that is unlikely to become perfect.

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 BJ's Wholesale 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 Costco and Wal-Mart, which are Motley Fool Inside Value choices. Costco is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Wal-Mart, which is also a Motley Fool Global Gains pick. 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.