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 and then decide whether Samson Oil & Gas (AMEX: SSN) 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. Although 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 a 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.
  • Moneymaking 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 Samson Oil & Gas.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 16.3% Pass
  1-Year Revenue Growth > 12% 81.9% Pass
Margins Gross Margin > 35% 32.6% Fail
  Net Margin > 15% 831.8% Pass
Balance Sheet Debt to Equity < 50% 13.3% Pass
  Current Ratio > 1.3 5.77 Pass
Opportunities Return on Equity > 15% 119.1% Pass
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
  Total Score   6 out of 9

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

With 6 points, Samson Oil & Gas does a lot better than many stocks. The Australian driller isn't a household name, but you can find its projects in several U.S. regions.

Samson is an exploration and development company that has properties in North Dakota, Wyoming, New Mexico, and Texas. In particular, the company has significant holdings in one of the newest hot energy areas, the Niobrara region. The Niobrara has attracted some very big players in the industry, including a joint venture between Chesapeake Energy (NYSE: CHK) and CNOOC (NYSE: CEO) to share costs and profits from Chesapeake's 800,000 acres in the play.

But even though Samson is a small player, it knows how to play in the big leagues. Earlier this year, Samson announced its own joint venture with Halliburton (NYSE: HAL) to help develop its Niobrara properties. Although the deal involved a lower implied valuation than CNOOC's deal with Chesapeake, it still has investors interested in small Niobrara players such as Samson and Rex Energy (Nasdaq: REXX).

High energy prices clearly favor small companies such as Samson. The question, though, is whether the company's holdings will prove out. With the shares having quadrupled in the past year, investors have already priced in big success. If it pans out, then Samson could make a lot of money. But if things don't go as well as expected, Samson might not look much like a perfect stock for long.

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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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.