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 Hasbro
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 Hasbro.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||5.2%||Fail|
|1-Year Revenue Growth > 12%||(2.8%)||Fail|
|Margins||Gross Margin > 35%||50.8%||Pass|
|Net Margin > 15%||8.9%||Fail|
|Balance Sheet||Debt to Equity < 50%||93.7%||Fail|
|Current Ratio > 1.3||3.29||Pass|
|Opportunities||Return on Equity > 15%||22.2%||Pass|
|Valuation||Normalized P/E < 20||21.59||Fail|
|Dividends||Current Yield > 2%||2.7%||Pass|
|5-Year Dividend Growth > 10%||21.9%||Pass|
|Total Score||5 out of 10|
Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.
With just five points, Hasbro hasn't crafted a perfect stock. While the toymaker has moved well past its roots to build an interesting combination of businesses, its future remains in question.
The bullish case for Hasbro is pretty easy to understand. The company behind G.I. Joe and Transformers toys, as well as Milton Bradley and Parker Brothers board games, has become a merchandise licensing legend by turning brands into profits through bombarding consumers from every angle. Moreover, the company continues to reach out to new venues, having launched a joint venture with Discovery Communications
Yet bears point out that prevailing trends are working against certain part of Hasbro's operations. As Motley Fool Alpha analyst Matthew Richey points out, the company's core games and puzzles segment is vulnerable to video game products like Microsoft's
Whether Hasbro will head toward perfection or fall away from it remains to be seen. Even with toys falling out of favor, both it and rival Mattel
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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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Hasbro; creating a bull call spread position in Apple; and creating a diagonal call position in Microsoft. A separate service has recommended shorting Hasbro. 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.