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 DISH Network
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 DISH Network.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Growth||5-Year Annual Revenue Growth > 15%||8%||Fail|
|1-Year Revenue Growth > 12%||8.4%||Fail|
|Margins||Gross Margin > 35%||41.6%||Pass|
|Net Margin > 15%||10.2%||Fail|
|Balance Sheet||Debt to Equity < 50%||NM||NM|
|Current Ratio > 1.3||1.16||Fail|
|Opportunities||Return on Equity > 15%||NM||NM|
|Valuation||Normalized P/E < 20||11.27||Pass|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||2 out of 8|
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
With just two points, DISH Network's stock isn't giving you crystal-clear reception. But the company has a lot of interesting things happening that could create a turnaround.
DISH Network is a satellite TV provider. As such, it competes not just with fellow disher DirecTV
But recently, DISH has made a number of interesting moves. It leapt at the chance to buy the assets of Blockbuster out of bankruptcy, leading some to think that DISH will go after Netflix
In addition, the company finally settled its lawsuit with TiVo
DISH isn't perfect, but given time, it could get a whole lot better. Depending on what the company does with its Blockbuster buy, DISH could be much closer to perfection in a few years.
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.
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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. Alpha Newsletter Account, LLC has bought puts on Netflix, which 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.