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 Neogen (Nasdaq: NEOG) 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 Neogen.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 17.2% Pass
  1-Year Revenue Growth > 12% 10.4% Fail
Margins Gross Margin > 35% 50.0% Pass
  Net Margin > 15% 12.6% Fail
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 7.08 Pass
Opportunities Return on Equity > 15% 11.8% Fail
Valuation Normalized P/E < 20 34.19 Fail
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   4 out of 10

Source: S&P Capital IQ. Total score = number of passes.

With a score of four, Neogen isn't looking as healthy as it should. The food and animal safety company is tapped into an important business, but so far, the returns haven't been there for shareholders.

Neogen makes a range of products focused on promoting food safety and animal health. One example is the company's test kit for salmonella, a disease that has resulted in outbreaks of food poisoning from time to time in recent years. Even the possibility of contamination was enough to force companies to take action in the past to protect customers, including jelly maker J.M. Smucker (NYSE: SJM) and egg producer Cal-Maine Foods (Nasdaq: CALM), so tests like this can be extremely valuable.

In addition, the company has made exciting moves lately. Neogen is expanding into emerging markets like Brazil and China, and even better, the company announced a marketing agreement with DuPont (NYSE: DD). Combined with a new animal safety facility in Kentucky, Neogen is pushing forward with growth plans.

Unfortunately, those growth plans haven't resulted in big profits. In its most recent quarterly results, Neogen disappointed on both revenue and net income, resulting in a big drop for the stock. By contrast, competitor Meridian Bioscience (Nasdaq: VIVO) has higher margins and returns on equity -- and pays a pretty big dividend to boot.

For Neogen to get closer to perfection, it needs its recently implemented strategies to bear fruit. With food demand ever on the rise, though, Neogen's in a promising position to improve -- and reward its shareholders.

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 Neogen 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. The Motley Fool owns shares of Cal-Maine Foods. 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.