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 CNinsure (Nasdaq: CISG) 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 CNinsure.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 59.5% Pass
  1-Year Revenue Growth > 12% 28.6% Pass
Margins Gross Margin > 35% 52.3% Pass
  Net Margin > 15% 28.4% Pass
Balance Sheet Debt to Equity < 50% 0.0% Pass
  Current Ratio > 1.3 7.98 Pass
Opportunities Return on Equity > 15% 14.6% Fail
Valuation Normalized P/E < 20 13.73 Pass
Dividends Current Yield > 2% 2.0% Pass
  5-Year Dividend Growth > 10% NM NM
  Total Score   8 out of 9

Source: Capital IQ, a division of Standard and Poor's. NM = not meaningful; CNinsure started paying its dividend in 2009. Total score = number of passes.

CNinsure grabs an impressive score of 8. The insurance broker has its hand in the biggest market on Earth, and it may only be getting started -- if it can find its way forward.

When investors think about growth stories, insurance companies are just about the last place they think. In the U.S., insurers like Allstate (NYSE: ALL), Travelers (NYSE: TRV), and Chubb (NYSE: CB) have all struggled just to keep their revenue levels stable, let alone grow them at any substantial rate.

CNinsure's status as an insurance broker in the quickly-growing Chinese marketplace makes high growth almost a foregone conclusion. The problem is that expectations are often higher than what the company has been able to deliver. In November, the company fell short of hopes even after posting 30% revenue and profit growth. In the following quarter, revenue and earnings again rose, but investors focused on huge jumps in overall expenses generally and a quadrupling of share-based compensation in particular.

Right now, concerns stem from a lack of clear direction from the company. CNinsure recently announced plans to sell its investment management division, which has been a significant contributor to earnings. A key analyst cut its opinion on the stock in response. Despite a strong past, CNinsure needs to figure out exactly what its path for the future is before it can hope to reach perfection.

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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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.