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 and then decide whether Barrick Gold (NYSE: ABX) 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 a 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.
  • Moneymaking 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 Barrick Gold.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 36.0% Pass
  1-Year Revenue Growth > 12% 34.3% Pass
Margins Gross Margin > 35% 60.1% Pass
  Net Margin > 15% 30.0% Pass
Balance Sheet Debt to Equity < 50% 32.3% Pass
  Current Ratio > 1.3 2.86 Pass
Opportunities Return on Equity > 15% 17.5% Pass
Valuation Normalized P/E < 20 18.09 Pass
Dividends Current Yield > 2% 0.9% Fail
  5-Year Dividend Growth > 10% 14.9% Pass
       
  Total Score   9 out of 10

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

Barrick Gold comes close to perfection with a score of 9. Only a too-small dividend blemishes its otherwise golden record.

Obviously, Barrick has benefited from the huge bull market in gold over the past decade, which has sent gold prices soaring. But as Foolish gold expert Christopher Barker notes, industry giants such as Barrick and Newmont Mining (NYSE: NEM) have a tough time sustaining growth once they get big. So far, Barrick has managed to keep up with fast revenue growth rates at Goldcorp (NYSE: GG), but Goldcorp did a good job last year of outmaneuvering Barrick by thwarting its plan to acquire a promising Chilean mine.

To keep growing, Barrick will have to find acquisition targets and get deals done. The challenge, though, will be to avoid overpaying for those acquisitions. Yet with big competition from other large miners, that will be a difficult goal to achieve.

Barker still sees Goldcorp and Agnico-Eagle Mines (NYSE: AEM) as the better growth bets over the long haul. With Goldcorp and Yamana Gold (NYSE: AUY) among producers with lower costs, Barrick won't sport the same margins going forward as some of its smaller competitors. Still, its balance of dividends and stability could give more conservative gold investors exactly what they want from a stock.

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.

Add Barrick Gold 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 don't 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.