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 and then decide whether Monster Worldwide
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 Monster Worldwide.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
| Growth | 5-Year Annual Revenue Growth > 15% | 1.1% | Fail |
| 1-Year Revenue Growth > 12% | 18.3% | Pass | |
| Margins | Gross Margin > 35% | 49.4% | Pass |
| Net Margin > 15% | 0.6% | Fail | |
| Balance Sheet | Debt to Equity < 50% | 10.3% | Pass |
| Current Ratio > 1.3 | 0.67 | Fail | |
| Opportunities | Return on Equity > 15% | 0.5% | Fail |
| Valuation | Normalized P/E < 20 | 73.28 | Fail |
| Dividends | Current Yield > 2% | 0.0% | Fail |
| 5-Year Dividend Growth > 10% | 0.0% | Fail | |
| Total Score | 3 out of 10 |
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
Monster Worldwide can hire only 3 points for its score. The company saw its meteoric growth stall out during the economic recession, but now that a slow recovery is taking hold, Monster is showing some signs of progress.
After a recession that raised unemployment toward the 10% mark, the last thing Monster needed was a jobless recovery. Yet that's what it got, and even after its own gauge of online demand started rising last year, Monster was still posting losses. Without the specialized listings of Dice Holdings
Another potential problem comes from social media. Just as Monster changed the paradigm for recruiters Kelly Services
Investors are clearly impatient for a faster recovery. Yesterday, the stock opened on about a 10% dip earlier this week after Monster CEO Sal Iannuzzi refused to raise guidance for the year, despite posting estimate-beating results for sales and earnings during the quarter.
Eventually, Monster may regain a bit more of its lost luster. But with innovation continuing unchecked throughout the industry, Monster won't become a perfect stock unless it can start matching up to new players.
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.
Add Monster Worldwide 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.
