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 Las Vegas Sands
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 Las Vegas Sands.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
|
Growth |
5-Year Annual Revenue Growth > 15% |
33.4% |
Pass |
|
1-Year Revenue Growth > 12% |
56.5% |
Pass |
|
|
Margins |
Gross Margin > 35% |
47.0% |
Pass |
|
Net Margin > 15% |
14.8% |
Fail |
|
|
Balance Sheet |
Debt to Equity < 50% |
107.4% |
Fail |
|
Current Ratio > 1.3 |
1.72 |
Pass |
|
|
Opportunities |
Return on Equity > 15% |
17.9% |
Pass |
|
Valuation |
Normalized P/E < 20 |
31.16 |
Fail |
|
Dividends |
Current Yield > 2% |
0.0% |
Fail |
|
5-Year Dividend Growth > 10% |
0.0% |
Fail |
|
|
Total Score |
5 out of 10 |
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
When we looked at Las Vegas Sands last year, it only managed to rack up four points, so the company has improved slightly from its 2010 showing. Net margins have improved dramatically and returns on equity now look quite healthy, revealing the big impact that Asian strength has had on the company.
Despite its name, Las Vegas Sands owes most of its recent success to areas that are thousands of miles away from its Nevada roots. Along with Melco Crown
At this point, Sands has two main concerns. First, its expansion depends largely on regulators in the Asian markets where it seeks growth. Second, a slowdown in economic growth in Asian emerging markets could spell disaster for what some analysts consider to be a bubble waiting to burst. In addition, Wynn has done a much better job grabbing share in Vegas from Sands and its other competitors, especially in the high-end market.
Even after the recent decline in its shares, Sands is still a pricey stock. But many investors are willing to gamble on the company's continued success in Asia. With a little luck, Las Vegas Sands could easily be a lot closer to perfect 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 Las Vegas Sands 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."
