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 A-Power Energy Generation Systems (Nasdaq: APWR) 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 A-Power Energy Generation Systems.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 36% Pass
  1-Year Revenue Growth > 12% 22.0% Pass
Margins Gross Margin > 35% 18.6% Fail
  Net Margin > 15% 4.9% Fail
Balance Sheet Debt to Equity < 50% 18% Pass
  Current Ratio > 1.3 2.02 Pass
Opportunities Return on Equity > 15% 5.7% Fail
Valuation Normalized P/E < 20 3.90 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   5 out of 10

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

With five points, A-Power finishes in the middle of the pack. The company is trying to cash in on prospects in wind energy, but its stock is vulnerable to a slowdown in Asian investment.

As its name suggests, A-Power is a player in the energy generation business, with a current emphasis on wind turbines. In that space, it goes up against much larger companies Siemens (NYSE: SI) and General Electric (NYSE: GE). A-Power has focused largely on Asia, although it also has tried to make inroads on a big wind project in west Texas.

Like many wind players, including Broadwind Energy (Nasdaq: BWEN) and American Superconductor (Nasdaq: AMSC), A-Power has disappointed shareholders. Its stock has dropped by more than half over the past year, with a big part of that drop came in December, when the company announced that it was looking to end its supply agreement with GE. That news came in conjunction with a disappointing quarterly report that included 41% lower revenue and a wider loss than during the previous year, as well as weaker forward guidance. Then, A-Power did an about-face and said it was happy with GE, but that didn't keep GE from suing A-Power for breach of contract.

More recently, A-Power signed two small biomass power plant contracts, but that won't be enough to turn the tide. Combined with a contract it got for a Chinese hydropower contract late last year, A-Power should have enough work for the foreseeable future.

The long-term question, though, is whether A-Power will pick a direction and stick to it. So far, it has flitted across business strategies almost at will, making it hard to see where the company is going. Until the company truly finds its niche, A-Power won't be able to make the leap to become a perfect stock.

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 A-Power Energy Generation Systems 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.