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 Veeco Instruments (Nasdaq: VECO) 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 Veeco Instruments.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-year annual revenue growth > 15% 20.8% Pass
  1-year revenue growth > 12% 119.2% Pass
Margins Gross margin > 35% 49% Pass
  Net margin > 15% 36.9% Pass
Balance sheet Debt to equity < 50% 11.8% Pass
  Current ratio > 1.3 3.07 Pass
Opportunities Return on equity > 15% 47% Pass
Valuation Normalized P/E < 20 10.45 Pass
Dividends Current yield > 2% 0% Fail
  5-year dividend growth > 10% 0% Fail
       
  Total Score   8 out of 10

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

Veeco Instruments lights up the chart with a score of eight. The maker of LED-producing equipment is on the cutting edge of energy efficient technology, and the stock has reflected the company's promise over the past two years.

One of the focal points of energy conservation in recent years has been lighting. Incandescent bulbs are far less efficient than several alternatives, including fluorescent tubes, LEDs, and organic light-emitting diodes, or OLEDs. That has created a rush of players in these alternative spaces, including Cree (Nasdaq: CREE), Philips (NYSE: PHG), and General Electric (NYSE: GE) in the LED space and Universal Display (Nasdaq: PANL) for OLEDs.

But to some extent, Veeco doesn't have to worry about competitive pressures. Because it supplies LED-making equipment to several market participants, Veeco only has to worry about industrywide problems rather than company-specific ones. That helps when a company like Cree foresees trouble ahead.

For now, LEDs aren't set to dominate the lighting scene, but a few years down the road, the situation may be quite different. By then, if things go right, Veeco may well have taken those last steps toward becoming a perfect 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.

Click here to add Veeco Instruments 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. Universal Display is a Motley Fool Rule Breakers pick. 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.