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 Advanced Battery Technologies (Nasdaq: ABAT) 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 Advanced Battery Technologies.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 77.1% Pass
  1-Year Revenue Growth > 12% 46.7% Pass
Margins Gross Margin > 35% 45.3% Pass
  Net Margin > 15% 43.5% Pass
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 24.30 Pass
Opportunities Return on Equity > 15% 25.4% Pass
Valuation Normalized P/E < 20 3.54 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   8 out of 10

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

With a score of 8, Advanced Battery Technologies looks like it's close to perfection. But controversy is plaguing the Chinese battery manufacturer, calling into question whether its impressive fundamentals are legitimate.

With much of alternative energy production focused on electricity and new applications like mass-marketed electric cars coming closer to reality, the key to success will depend on storing and using electricity through batteries. Advanced Battery has plenty of competition in the space, including A123 Systems (Nasdaq: AONE), Ener1 (Nasdaq: HEV), and Valence Technology (Nasdaq: VLNC). But so far, Advanced Battery is well ahead of the pack in terms of profitability.

Yet investors have run into problems with the stock. Late last year, it raised money in an incredibly dilutive stock offering, selling $30 million in stock and warrants at below-market prices.

More importantly, Advanced Battery has faced recent allegations that its financial reports are false. Yet the company has done a better job than some in responding to claims from short-sellers. At this point, the only certain thing about the stock is that it's priced for skepticism, with a puny P/E ratio.

Until the Chinese small-cap witch hunt ends and these claims are resolved, you won't know whether Advanced Battery is a perfect stock. If the dust settles favorably for the battery maker, though, then it could easily reward those who kept the faith.

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 Advanced Battery Technologies 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. 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.