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 Gardner Denver (NYSE: GDI) 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 Gardner Denver.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 7.3% Fail
  1-Year Revenue Growth > 12% 25.1% Pass
Margins Gross Margin > 35% 34.1% Fail
  Net Margin > 15% 11.7% Fail
Balance Sheet Debt to Equity < 50% 31.6% Pass
  Current Ratio > 1.3 2.01 Pass
Opportunities Return on Equity > 15% 22.6% Pass
Valuation Normalized P/E < 20 15.32 Pass
Dividends Current Yield > 2% 0.3% Pass
  5-Year Dividend Growth > 10% NM NM
  Total Score   5 out of 9

Source: S&P Capital IQ. NM = not meaningful; Gardner started paying a dividend in Nov. 2009. Total score = number of passes.

With five points, Gardner Denver doesn't entirely distinguish itself. The company has a promising mix of businesses, but it also carries substantial uncertainty right now.

Gardner makes industrial machinery and parts for use around the world. Its industrial products segment makes compressors, blowers, and vacuum pumps for general purposes. But its engineered products segment makes products that are used in oil and gas well drilling, a hot commodity these days. Just as drilling suppliers National Oilwell Varco (NYSE: NOV) and TETRA Technologies (NYSE: TTI) have seen great success due to a turbocharged energy market lately, demand for drilling has made the engineered products division a lot more profitable for Gardner.

Recently, though, Gardner hasn't lived up to expectations. In its most recent quarterly report, Gardner managed to grow profits by 36%, but sales fell short of Wall Street estimates. With the company sensitive to problems in the European economy, the recent turmoil there casts a shadow on Gardner's future. Europe hasn't held Gardner down as much as it has European oil companies Total (NYSE: TOT) and Eni (NYSE: E), but with more than a third of its revenue coming from the Continent, Gardner certainly feels the pain when Europe flares up.

For Gardner to keep up its score, it needs to have a healthy energy industry sustain its engineered products segment's growth. If it's fortunate enough to get that tailwind -- and some resolution in Europe -- then Gardner could push its way forward into the next global expansion.

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.

Gardner may not be a perfect stock, but we've got some ideas you may like better. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

Click here to add Gardner Denver to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of National Oilwell Varco. Motley Fool newsletter services have recommended buying shares of National Oilwell Varco and Total. 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.