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 ManpowerGroup
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 ManpowerGroup.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||5.4%||Fail|
|1-Year Revenue Growth > 12%||20.3%||Pass|
|Margins||Gross Margin > 35%||16.9%||Fail|
|Net Margin > 15%||(0.7%)||Fail|
|Balance Sheet||Debt to Equity < 50%||27.8%||Pass|
|Current Ratio > 1.3||1.32||Pass|
|Opportunities||Return on Equity > 15%||(6.1%)||Fail|
|Valuation||Normalized P/E < 20||9.41||Pass|
|Dividends||Current Yield > 2%||2.3%||Pass|
|5-Year Dividend Growth > 10%||7.4%||Fail|
|Total Score||5 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
With a score of five, ManpowerGroup finishes in the middle of the road. The terrible job market has played havoc on recruiting practices, but recent reports suggest that there may be light at the end of the tunnel.
ManpowerGroup provides staffing and employment services around the world. Providing both temporary and permanent recruiting and consulting services, the company competes not only against fellow traditional companies like Korn/Ferry
Under ordinary conditions, ManpowerGroup and its peers benefit from the regular flow of employees across industries and throughout the economy. But obviously, the recession and the huge jump in unemployment have hurt recruiting activity, leading to big challenges. In particular, ManpowerGroup's margins compare very badly against nearly all of its competitors, making its fairly strong growth over the past year far less valuable.
Earlier this week, shares of ManpowerGroup surged as hopes for a recovery in Europe outweighed reports that slightly fewer hiring managers expect to add jobs in the first half of 2012 than they did in the second half of this year. However, the larger gains that Monster Worldwide and Dice Holdings enjoyed suggest that they may benefit more from the trend than ManpowerGroup will.
What will make or break ManpowerGroup going forward is the status of job creation both in the U.S. and abroad. If the global economy can recover, then ManpowerGroup may get a lot closer to perfection; but if the jobless recovery continues, then the company could be in for tough sailing for a long time.
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. Motley Fool newsletter services have recommended buying shares of Accenture. 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.