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 Universal Display (Nasdaq: PANL) 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 Universal Display.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 38.7% Pass
  1-Year Revenue Growth > 12% 100.7% Pass
Margins Gross Margin > 35% 40.4% Pass
  Net Margin > 15% 5.1% Fail
Balance Sheet Debt to Equity < 50% 0.0% Pass
  Current Ratio > 1.3 18.56 Pass
Opportunities Return on Equity > 15% 1.6% Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   5 out of 9

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

Since we looked at Universal Display last year, the company has picked up a point. LED technology continues to advance, with the promise of replacing older technology in the years to come, but that progress won't come without hiccups.

Universal Display makes organic light-emitting diodes for displays on devices like TVs and smartphones. Compared to traditional LEDs, the OLED manufacturing process reduces costs and allows for surfaces that don't have to be flat. OLEDs also give users energy savings over alternatives.

Universal Display got a huge vote of confidence from Samsung last year in the form of a six-and-a-half-year contract. The deal gave Universal Display more certainty in its revenue, given that Samsung is the company's largest buyer. Samsung, in turn, will make glass OLED display panels using Corning's (NYSE: GLW) Lotus glass, which can withstand the heat from making OLEDs -- letting Universal Display show off practical applications of its technology. At the same time, the deal also provides Universal Display with leverage against Sony (NYSE: SNE) and other smaller and potential customers in negotiating similar long-term deals.

In February, Universal Display announced its third-straight profitable quarter that beat estimates on both earnings and sales. Yet the stock fell sharply, presumably because its sky-high valuation reflected investors' wishes for an even bigger beat.

Nevertheless, Universal Display appears to be on the road to profitability in a promising industry. Both AU Optronics (NYSE: AUO) and LG Display (NYSE: LPL) plan to boost their OLED production this year, competing with Samsung to offer OLED-based TVs of their own. If that pans out, then Universal Display should see its score rise further in the near future.

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.

Universal Display isn't perfect yet, 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 Universal Display 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 Corning. Motley Fool newsletter services have recommended buying shares of Universal Display and Corning. 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.