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 National Beverage (Nasdaq: FIZZ) 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 National Beverage.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 2.9% Fail
  1-Year Revenue Growth > 12% 2.3% Fail
Margins Gross Margin > 35% 35.8% Pass
  Net Margin > 15% 7% Fail
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 1.80 Pass
Opportunities Return on Equity > 15% 32.3% Pass
Valuation Normalized P/E < 20 17.41 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   5 out of 10

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

Since we looked at National Beverage last year, the company has dropped a point, as it chose not to declare a special dividend in 2011. But the drink maker has seen its returns on equity soar even amid lackluster sales growth.

If you've ever bought store-brand soft drinks, National Beverage likely played a role in making them. The company also makes Shasta soda and Everfresh juices.

One challenge for National Beverage, though, is that it doesn't have the brand power to tap into the fastest-growing emerging global markets. Both Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) have increasingly relied on emerging markets for growth, in the face of lackluster volume in the mature North American market.

Where National Beverage sees growth opportunities is right here at home. The company plans to aim to put more of its products in convenience stores and other small retailers. In addition, new products like its Rip It energy drink will help National Beverage take aim at Monster Beverage (Nasdaq: MNST), which has turned energy drinks into the namesake foundation of its growth in recent years.

National Beverage may also benefit from the same factors driving the current popularity of SodaStream (Nasdaq: SODA). Many turn to SodaStream for lower drink costs, but National Beverage's products tend to be cheaper than Coke and Pepsi and often compete favorably against SodaStream's per-can-equivalent costs.

Unfortunately, National Beverage's decision not to pay a special dividend in 2011 makes the stock less attractive than it was last year. But if the company can sustain solid profits and continue finding lucrative niches, then it could easily move back toward perfection 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 the best investments from the rest.

National Beverage isn't perfect, 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.

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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Coca-Cola and PepsiCo. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Monster Beverage, SodaStream, and PepsiCo, as well as creating a diagonal call position in PepsiCo. 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.