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, then decide if Apple (Nasdaq: AAPL) 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 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.
  • Money-making 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 Apple.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 36.3% Pass
  1-Year Revenue Growth > 12% 63.3% Pass
Margins Gross Margin > 35% 38.8% Pass
  Net Margin > 15% 21.8% Pass
Balance Sheet Debt to Equity < 50% 0.0% Pass
  Current Ratio > 1.3 1.85 Pass
Opportunities Return on Equity > 15% 36.8% Pass
Valuation Normalized P/E < 20 23.93 Fail
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   7 out of 10

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

With seven points, Apple doesn't quite reach perfection. But in the two areas where the stock falls short, valuation and dividends, many shareholders are already quite comfortable with the way Apple does business.

Apple's financial strength is apparent from its hugely popular products, ranging from Mac computers to iPhones and iPads. But as Foolish tech analyst Eric Bleeker notes, Apple's product success is just part of its winning strategy. With its ability to adapt its operating system to various types of devices, it challenges Microsoft (Nasdaq: MSFT) and its Windows PC dominance. With its huge App Store, it has a first-mover advantage over competing devices using Google's (Nasdaq: GOOG) Android software.

Moreover, its growth is only accelerating. Although Research In Motion (Nasdaq: RIMM) has seen faster revenue growth since 2006, Apple's sales grew nearly twice as fast as RIM's over the past year.

Some investors bemoan the fact that Apple doesn't pay a dividend. With Cisco Systems (Nasdaq: CSCO) recently announcing its first dividend ever, an Apple payout could be next on the horizon -- and with its cash hoard, the company could afford a generous dividend if it wanted. And even from a valuation standpoint, Apple shares trade at fairly low multiples compared to where they did in the past.

Apple may not score a 10 on this scale, but looking at its past returns, it's hard to argue it hasn't been a perfect stock for long-term shareholders. It should be interesting to see how the company keeps trying to stay on top of its highly competitive industry.

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 Apple 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. Apple is a Motley Fool Stock Advisor recommendation. Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers pick. Motley Fool Options has recommended a bull call spread position on Apple and a diagonal call position on Microsoft. The Fool has written puts on Apple, has a bull call spread on Cisco Systems, and owns shares of Apple, Google, and Microsoft. Motley Fool Alpha LLC owns shares of Cisco Systems. 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.