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 Quicksilver Resources (NYSE: KWK) 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 a 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 Quicksilver Resources.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 16.3% Pass
  1-Year Revenue Growth > 12% (6.2%) Fail
Margins Gross Margin > 35% 55.3% Pass
  Net Margin > 15% 11.7% Fail
Balance Sheet Debt to Equity < 50% 158.2% Fail
  Current Ratio > 1.3 1.28 Fail
Opportunities Return on Equity > 15% 9.0% Pass
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
  Total Score   2 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 Quicksilver Resources last year, the company's score has dropped by three points. Much weaker figures due to asset write-downs explain much of the drop, but falling revenue is also a bad sign and has definitely contributed to the stock's roughly 65% plunge in the past year.

Natural gas has been a terrible place to invest recently. With prices having set decade-long lows earlier this year, even cost-effective producers Ultra Petroleum (NYSE: UPL) and Southwestern Energy (NYSE: SWN) have felt the pinch.

But, more recently, gas prices have finally started rising, moving above the $3 level in recent sessions. That's reawakened interest not only in gas-price ETF United States Natural Gas (NYSE: UNG), but also in Quicksilver, whose shares have jumped more than 50% off their lows from last month.

Still, Quicksilver faces challenges. Standard & Poor's downgraded the company's corporate credit rating to B-, deep in the junk category, and its senior unsecured debt to CCC+. The downgrade will make it more costly for Quicksilver to get additional credit, or refinance existing debt when it matures.

In the long run, though, what Quicksilver needs, in order to improve, is a more favorable market for natural gas. If prices continue to rise, they could save Quicksilver's future prospects. But if they stay low, Quicksilver could become a casualty of the crowded space.

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.

If you like energy stocks, you may want other options beyond Quicksilver Resources. We've got another stock you should also look at more closely. Read about it right here in The Motley Fool's special free report on the energy industry and its best prospects -- it's free but only available for a limited time, so click here today.

Click here to add Quicksilver Resources 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 in this article. The Motley Fool owns shares of Ultra Petroleum. Motley Fool newsletter services have recommended buying shares of Ultra Petroleum. 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.