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 (Nasdaq: DISH) 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 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 (Nasdaq: DTV) but also cable companies Time Warner Cable (NYSE: TWC) and Comcast (Nasdaq: CMCSA). With TV giving way to the Internet as a source of content, DISH has had trouble keeping up with the growth of cable companies that offer broadband Internet access internally as part of triple-play packages.

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 (Nasdaq: NFLX) with an infrastructure that combines digital streaming and home delivery.

In addition, the company finally settled its lawsuit with TiVo (Nasdaq: TIVO), pushing shares of both companies higher despite DISH having to agree to pay the DVR company a cool $500 million. That removes a major overhang from the stock and may get investors to pay attention to a strong first quarter.

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.

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.

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