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 CSX (NYSE: CSX) 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 CSX.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 4.3% Fail
  1-Year Revenue Growth > 12% 17.6% Pass
Margins Gross Margin > 35% 37.8% Pass
  Net Margin > 15% 14.7% Fail
Balance Sheet Debt to Equity < 50% 99.6% Fail
  Current Ratio > 1.3 1.13 Fail
Opportunities Return on Equity > 15% 17.9% Pass
Valuation Normalized P/E < 20 18.83 Pass
Dividends Current Yield > 2% 1.3% Fail
  5-Year Dividend Growth > 10% 35.4% Pass
       
  Total Score   5 out of 10

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

With five points, CSX posts a score right in the middle of the (rail)road. As the economy ramps up, however, the train transportation giant has some tailwinds helping push it down the tracks.

Back when fuel prices were low, moving things by rail seemed like a throwback to the olden days. With the combination of bulk cargo ships to bridge oceans and trucking companies to direct those goods exactly where they were needed, railroads saw their viability threatened.

But CSX and its peers have capitalized on rising energy prices, which highlight the fuel efficiency of train-based shipping. And although analysts expect several of its peers in the industry, including Norfolk Southern (NYSE: NSC), Union Pacific (NYSE: UNP), and Canadian National Railway (NYSE: CNI), to turn that trend into double-digit growth in the years ahead, they have even higher expectations for CSX.

Recently, the company has been delivering on those high hopes. Last quarter, the railroad showed a 48% jump in earnings, with coal exports playing a major role in the company's growth story. That growth is also showing up in the company's dividend; while its current yield lags behind its peers, its dividend growth rate is at the top of the list.

CSX has further to travel before it can count itself among perfect stocks. But the railroad shows every sign of seeing things continue to improve for the foreseeable future.

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 CSX 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 Caplingerdoesn't own shares of the companies mentioned in this article. Canadian National Railway is a Motley Fool Stock Advisor recommendation. 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.