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 PetMed Express (Nasdaq: PETS) 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 PetMed Express.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 11.0% Fail
  1-Year Revenue Growth > 12% (2.8%) Fail
Margins Gross Margin > 35% 36.2% Pass
  Net Margin > 15% 9.0% Fail
Balance Sheet Debt to Equity < 50% 0.0% Pass
  Current Ratio > 1.3 10.00 Pass
Opportunities Return on Equity > 15% 21.5% Pass
Valuation Normalized P/E < 20 14.08 Pass
Dividends Current Yield > 2% 3.9% Pass
  5-Year Dividend Growth > 10% NM NM
  Total Score   6 out of 9

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

With a score of 6, PetMed Express puts up a good showing. The mail-order veterinary medicine company has tapped into America's love affair with pets and their desire for quick, convenient delivery of the things they need.

PetMed's goal is very simple: to become for pet medicines what Amazon.com (Nasdaq: AMZN) has become for books, electronics, and just about everything else. Most pet owners still go to local vets, but PetMed is trying to win them over with cheaper prescriptions and convenience that matches a neighborhood pet doctor. With 70 million pet owners spending $45 billion annually on their pets, the market is huge. Meanwhile, the company is licensed across the nation to sell prescription drugs, which pet supply sellers from specialty PetSmart (Nasdaq: PETM) to general retailers Amazon and Wal-Mart (NYSE: WMT) can't do.

That said, PetMed doesn't have a huge share of that market right now, at only about 6%. And even worse, revenue growth has slowed considerably, even reaching a slight drop over the past year. Analysts have noticed the problem, and shareholders are feeling the pinch.

Until the company manages to return to a growth trajectory, PetMed isn't going to become shareholders' best friend. But just as Walgreen's (NYSE: WAG) recent acquisition of drugstore.com (Nasdaq: DSCM) shows that people are getting more comfortable with online pharmacies for their own prescriptions, PetMed should benefit from the same trends over the long haul.

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.