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 Gannett (NYSE: GCI) 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 Gannett.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% (6.9%) Fail
  1-Year Revenue Growth > 12% (3.0%) Fail
Margins Gross Margin > 35% 45.0% Pass
  Net Margin > 15% 10.4% Fail
Balance Sheet Debt to Equity < 50% 97.3% Fail
  Current Ratio > 1.3 1.28 Fail
Opportunities Return on Equity > 15% 28.4% Pass
Valuation Normalized P/E < 20 6.58 Pass
Dividends Current Yield > 2% 1.0% Fail
  5-Year Dividend Growth > 10% (32.5%) Fail
       
  Total Score   3 out of 10

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

With just three points, Gannett is far from a perfect stock. The publisher is seen as a major player in a dying industry, but Gannett has some surprises that may keep it from failing entirely.

Newspaper stocks have suffered greatly in recent years as the Internet draws readers away from print media. Among stocks in the space, both Gannett and New York Times Co. (NYSE: NYT) have seen revenue drop for five years in a row. The more diversified Washington Post Co. (NYSE: WPO) has needed strong performance from its Kaplan education unit to boost its profits.

But Gannett, as publisher of USA TODAY, is actually quite profitable, as it targets transitory audiences like hotel occupants, airport travelers, and gym members who aren't necessarily regular newspaper readers. In addition, it has a big stake in CareerBuilder, whose competitor Monster Worldwide (NYSE: MWW) fetches a $2.3 billion market cap despite having a net loss over the past year.

With a big debt load, Gannett still has work to do to try to improve its financial situation. But with a strong return on equity and a valuation that implies that it's going out of business, Gannett could give courageous investors good returns just by surviving. That may not make it perfect, but it might be worth a speculative buy for some.

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 Gannett 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 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.