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 Kopin (Nasdaq: KOPN) 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 Kopin.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 7.6% Fail
  1-Year Revenue Growth > 12% 9.5% Fail
Margins Gross Margin > 35% 32% Fail
  Net Margin > 15% 7.7% Fail
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 7.31 Pass
Opportunities Return on Equity > 15% 5.9% Fail
Valuation Normalized P/E < 20 73.18 Fail
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   2 out of 10

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

Kopin's score of just two points reveals a stock that's far from perfection. But the company is poised in an industry that has seen spectacular growth recently, and if Kopin can get its foot in the door, it could see anemic growth rates come to life in a hurry.

Kopin is a maker of small flat-panel displays like the ones you see in camcorders and digital cameras. Among consumer-oriented companies, Eastman Kodak (NYSE: EK) is a Kopin customer. In addition, the technology has defense applications such as night vision systems, which has led Raytheon (NYSE: RTN) and ITT (NYSE: ITT) to buy products from Kopin as well.

With the rise of smartphones, tablets, and other mobile devices, the ability to watch video has become almost a must. Kopin has actually taken advantage of that trend in another way, by selling its III-V semiconductor circuits to iPhone suppliers TriQuint Semiconductor (Nasdaq: TQNT) and Skyworks Solutions (Nasdaq: SWKS). Thanks to strong results from both circuits and microdisplays, Kopin posted record revenues during the first quarter, with net income doubling over last year's levels.

One future initiative the company is banking on is its Golden-i cloud-computing product. Kopin is working with Motorola Solutions (NYSE: MSI) to launch the product, which will be voice-activated, in 2012.

So far, Kopin's potential isn't really showing up in its financial numbers. But if recent trends continue, Kopin could look a lot more like a perfect stock in the years ahead.

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 Kopin 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. The Motley Fool owns shares of Raytheon and TriQuint Semiconductor and has also bought calls on TriQuint. 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.