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 Bridgepoint Education (NYSE: BPI) 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 Bridgepoint Education.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 95.1% Pass
  1-Year Revenue Growth > 12% 21.3% Pass
Margins Gross Margin > 35% 71.5% Pass
  Net Margin > 15% 15.9% Pass
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 1.70 Pass
Opportunities Return on Equity > 15% 44.7% Pass
Valuation Normalized P/E < 20 7.20 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   8 out of 10

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

Since we looked at Bridgepoint Education last year, the company has kept its eight-point score. But controversy in the for-profit education industry continues, which is largely to blame for the drop in Bridgepoint's stock price.

Economic recessions are tough, but they spell opportunity for some businesses. With so many job seekers looking to boost their skills, for-profit educators like Bridgepoint found themselves in the growth spotlight in recent years as they promised to help educate an adapting workforce. Even with giant Apollo Group (Nasdaq: APOL) dominating the industry with its University of Phoenix offerings and ITT Educational Services (NYSE: ESI) bombarding the airwaves with its technology-focused courses, there's plenty of room for Bridgepoint and other small peers to find a niche.

But for-profit education has been under attack lately: The government has addressed concerns about poor graduation rates and high student-loan default rates by clamping down on schools with regulations last year. Moreover, Bridgepoint, DeVry (NYSE: DV), and Strayer Education (Nasdaq: STRA) all reported falling end-of-year enrollment figures last summer, which took the steam out of their shares.

As a result, Bridgepoint is trying to focus more on high-quality students who will stick with their courses and graduate. With investments in analytical methods to help students at risk of failing, the company hopes to stand out from its peers.

For Bridgepoint to keep improving, it will eventually need to start paying a dividend. But for now, its focus on ridding itself of any suggestion of not providing a quality education to its students is the best move to ensure Bridgepoint's long-term success.

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.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.