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 St. Joe (NYSE: JOE) 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 St. Joe.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% (22.7%) Fail
  1-Year Revenue Growth > 12% 46% Pass
Margins Gross Margin > 35% 50.8% Pass
  Net Margin > 15% (227.3%) Fail
Balance Sheet Debt to Equity < 50% 9.8% Pass
  Current Ratio > 1.3 2.61 Pass
Opportunities Return on Equity > 15% (46.6%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   4 out of 9

Source: S&P Capital IQ. NM = not meaningful due to negative earnings. Total score = number of passes.

Since we looked at St. Joe last year, the land company has seen its score double. Improvement in the housing market could lead to further gains in the near future.

Last year, St. Joe had a lot of attention not from its fundamentals, but rather because of a big debate between investors Bruce Berkowitz and David Einhorn. Berkowitz had made a huge bullish bet on the company, taking a 30% stake and an activist role, while Einhorn considered the stock an excellent short prospect. Over the past year at least, Einhorn has won that debate, as everything from poor business conditions to an SEC investigation of the company has sent the shares falling sharply.

But finally, fundamentals may be starting to move in St. Joe's favor. Late last year, Wal-Mart (NYSE: WMT) bought 10 acres of land from St. Joe's for $2.5 million. That's a small-looking deal, but it bolsters positive news we've seen from real estate developers that operate in Florida. KB Home (NYSE: KBH), for instance, saw a 38% jump in net orders during its fourth quarter. Beazer Homes (NYSE: BZH) had closings surge 67%.

Still, not everything is rosy in housing, and that's what it'll take to help St. Joe's land holdings. For now, speculation has a big influence on the stock, as long-term drops have been punctuated by occasional short-squeeze recoveries.

For St. Joe to improve, it needs a full-blown recovery in the housing market to bolster interest in development again. Only then will its raw land holdings appreciate to their full potential -- and hopefully lift the stock with them.

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.

St. Joe 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 St. Joe 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 Wal-Mart. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart. 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.