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 Shuffle Master (Nasdaq: SHFL) 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 Shuffle Master.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 7.9% Fail
  1-Year Revenue Growth > 12% 15.1% Pass
Margins Gross Margin > 35% 63.2% Pass
  Net Margin > 15% 14.7% Fail
Balance Sheet Debt to Equity < 50% 8.9% Pass
  Current Ratio > 1.3 3.08 Pass
Opportunities Return on Equity > 15% 15.1% Pass
Valuation Normalized P/E < 20 24.35 Fail
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 Shuffle Master last year, the company has kept its five-point score. But the stock has given shareholders a nice ride, gaining about 70% over the past year.

Even though it's not a bank, Shuffle Master took a huge hit leading up to the financial crisis, and it's still working hard to recover its past glory. During the big boom in the mid-2000s, the card-shuffler company rode on the coattails of the explosion in popularity of casinos, as Las Vegas Sands (NYSE: LVS), Wynn Resorts (Nasdaq: WYNN), and MGM Resorts (NYSE: MGM) were doing big expansions all over the world and enjoying huge success. More casino traffic for the gaming-resort giants meant more customers for Shuffle Master's shufflers.

The market meltdown brought casinos in Las Vegas to their knees, endangering Shuffle Master's business model. Now, Asian growth is key, with the huge resorts of Macau being the epicenter of the gaming world. Along with competitors International Game Technology (NYSE: IGT) and Bally Technologies, Shuffle Master has taken its fair share of profits from Asia. Yet as Macau reaches maturity, Shuffle Master will have to look elsewhere for the biggest growth prospects.

The good thing, though, is that Shuffle Master has learned from its past mistakes. Its recent acquisition of Ongame gives it a chance to participate in online gaming, which many believe will be legalized in the U.S. in the near future.

For Shuffle Master to improve, it needs to focus on earnings growth. An online gaming revival could be just the ticket to future success, and if Shuffle Master can get ahead of the curve and be ready when legalized U.S. online gaming comes, it could be the catalyst the company needs to vault toward perfection.

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.