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 Trina Solar (NYSE: TSL) 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 Trina Solar.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 100% Pass
  1-Year Revenue Growth > 12% 97.3% Pass
Margins Gross Margin > 35% 30.5% Fail
  Net Margin > 15% 15.2% Pass
Balance Sheet Debt to Equity < 50% 47.9% Pass
  Current Ratio > 1.3 2.07 Pass
Opportunities Return on Equity > 15% 29.7% Pass
Valuation Normalized P/E < 20 6.21 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   7 out of 10

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

Trina shines with seven points. But the solar industry has gone through plenty of turmoil in recent years, and the future isn't as cloudless as a solar stock would like.

Trina is a Chinese company that produces solar modules, and lately the company has been growing like gangbusters. Earlier this year, Trina announced expectations to increase its capacity from 1.2 gigawatts at the end of 2010 to 1.9 gigawatts by 2012. The company remains smaller than Chinese leader Suntech Power (NYSE: STP) and has higher costs per watt than First Solar (Nasdaq: FSLR), but Trina maintains a small lead over some of its smaller competitors.

But several factors are making things tough on Trina and other panel makers. First, a drop in European demand has hurt solar companies that rely on the continent's market, including LDK Solar (NYSE: LDK) and JA Solar (Nasdaq: JASO). Trina has branched out with more geographic diversification recently, but it still has significant exposure in Europe.

In addition, silver prices have roughly doubled in the past year, and with silver a key element to making solar panels, Trina has been unable to reduce its total non-silicon cost of production. Although DuPont (NYSE: DD) -- which makes the silver paste material on panels -- is trying to come up with an alternative, investors can't expect answers right away.

Most recently, troubles among Chinese stocks have everyone walking on eggshells. Yesterday, Trina shares dropped 12% as the company's audit committee chair resigned.

Of course, if Trina doesn't meet the same fate as those Chinese small-caps that have faced fraud allegations, then the current valuation may prove to be a huge bargain. Still, Trina won't be perfect until it proves itself among its peers as well as in the court of public opinion.

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 Trina Solar 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. Motley Fool newsletter services have recommended buying shares of First Solar. 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.