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 Consolidated Graphics (NYSE: CGX) 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 Consolidated Graphics.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 3.2% Fail
  1-Year Revenue Growth > 12% 5.9% Fail
Margins Gross Margin > 35% 24.5% Fail
  Net Margin > 15% 3.4% Fail
Balance Sheet Debt to Equity < 50% 61.5% Fail
  Current Ratio > 1.3 1.38 Pass
Opportunities Return on Equity > 15% 12.6% Fail
Valuation Normalized P/E < 20 12.29 Pass
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 & Poor's. Total score = number of passes.

Consolidated Graphics doesn't paint a pretty picture with its score of 2. The printing specialist has had trouble living up to Wall Street's expectations, and that spells trouble for shareholders.

Consolidated Graphics provides a number of printing services to businesses, including commercial and digital printing, print-related technology solutions, and mailing and fulfillment centers. Essentially, Consolidated Graphics allows its customers to outsource their printing needs, freeing them to focus on their own business.

The problem, though, is that the entire print services industry is struggling. Looking at Consolidated's major competitors, R.R. Donnelley (Nasdaq: RRD) is growing even more slowly and is less profitable than Consolidated, while both Quad/Graphics (NYSE: QUAD) and Cenveo (NYSE: CVO) have lost money over the past 12 months. Even Deluxe (NYSE: DLX), which is best known for printing checks for bank customers, has seen revenue contract over the past five years.

In its most recent quarter, Consolidated saw modest rises in sales and earnings, but both fell short of what analysts had hoped to see. With weak future guidance as well, investors pushed shares well below their former lows for the year.

With cloud-based solutions emerging as a viable alternative for smaller businesses and corporate America trimming down overhead costs, old-style heavy-duty printing needs may fade into the sunset. That won't just keep Consolidated Graphics from reaching perfection; it could also become irrelevant in time.

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.

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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."