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 Sony (NYSE: SNE) 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 Sony.


What We Want to See


Pass or Fail?

Growth 5-year annual revenue growth > 15% (0.1%) Fail
  1-year revenue growth > 12% 4.2% Fail
Margins Gross margin > 35% 24.2% Fail
  Net margin > 15% 1% Fail
Balance sheet Debt to equity < 50% 31.6% Pass
  Current ratio > 1.3 1.01 Fail
Opportunities Return on equity > 15% 3.6% Fail
Valuation Normalized P/E < 20 10.57 Pass
Dividends Current yield > 2% 1.1% Fail
  5-year dividend growth > 10% 0% Fail
  Total Score   2 out of 10

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

With just two points, Sony is nowhere near perfect. The company has faced challenges beyond its control in the past month or two, but the problems at the electronics giant have gone on far longer than that.

Sony has a history of innovation, ranging from its introduction of the Walkman 30 years ago to its gaming systems today. Yet the company has lagged behind competitors Microsoft (Nasdaq: MSFT) and Nintendo in the gaming space recently, as Microsoft's new Kinect controller has awakened interest in the Xbox franchise and led some Sony users to question their loyalty.

March's earthquake in Japan certainly didn't help the beleaguered manufacturer. And even more recently, the company's debacle in allowing hackers to penetrate its 77 million member PlayStation Network has hurt its reputation even further. With the likely theft of personal data and even credit card information from its customers, Sony won't be making any friends anytime soon.

Sony hasn't given up, though. The 3net 3-D television channel, which it worked on with partners IMAX (NYSE: IMAX) and Discovery (Nasdaq: DISCA), hit the air earlier this year. But with retail sales of 3-D televisions not matching up to hopes, 3net may be another dead end for Sony.

Sony's past experience clearly demonstrates that it can come up with hits. The question, though, is when the next one will come. Until it does, Sony will continue to struggle to survive its missteps.

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 Sony 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. IMAX is a Motley Fool Rule Breakers selection. Nintendo is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft, which is a Motley Fool Inside Value recommendation. The Fool and Alpha Newsletter Account LLC own shares of Microsoft. 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.