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 Advanced Micro Devices (NYSE: AMD) 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 Advanced Micro Devices.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 2.1% Fail
  1-Year Revenue Growth > 12% 20.2% Pass
Margins Gross Margin > 35% 45.6% Pass
  Net Margin > 15% 7.3% Fail
Balance Sheet Debt to Equity < 50% 239.0% Fail
  Current Ratio > 1.3 2.15 Pass
Opportunities Return on Equity > 15% 34.4% Pass
Valuation Normalized P/E < 20 NM Fail
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   4 out of 10

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

AMD only manages to rack up four points. The company continues to languish in the shadow of its rivals despite having opportunities to outperform on its own.

For years, investors have seen AMD as the perennial also-ran to Intel (Nasdaq: INTC) in the PC processor business. Just looking at Intel's numbers on the metrics above reveals a huge difference; Intel is profitable, has huge margins, and pays a healthy dividend, while AMD continues to struggle to make money at all.

More recently, AMD has had opportunities to make its own mark. With its graphics chips, AMD went head-to-head against Intel and NVIDIA (Nasdaq: NVDA) with some success. And as Intel ran into design flaw problems that led to a large recall, AMD seemed poised to take advantage.

Yet the recent departure of former CEO Dirk Meyer leaves AMD without an established leader at a crucial time. AMD can't move forward strongly with its leadership vacuum, ceding the initiative to innovative players like ARM Holdings (Nasdaq: ARMH) and its Wintel-threatening architecture that could soon make inroads into the PC space.

AMD isn't a hopeless cause. But after repeatedly failing to execute on promising opportunities, it's hard to argue that it will become a perfect stock anytime soon.

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 Advanced Micro Devices 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. NVIDIA is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Intel, which is a Motley Fool Inside Value selection. The Fool owns shares of and has bought calls on Intel. 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.