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 PetroQuest Energy (NYSE: PQ) 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 PetroQuest Energy.


What We Want to See


Pass or Fail?


5-Year Annual Revenue Growth > 15%




1-Year Revenue Growth > 12%




Gross Margin > 35%




Net Margin > 15%



Balance Sheet

Debt to Equity < 50%




Current Ratio > 1.3




Return on Equity > 15%




Normalized P/E < 20




Current Yield > 2%




5-Year Dividend Growth > 10%




Total Score


1 out of 10

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

Since we looked at PetroQuest Energy last year, the company has been stuck at its one-point score. The stock hasn't even managed to hold its own, falling 20% over the past year in a weak environment for energy stocks generally.

PetroQuest has been one of the many exploration and production companies that have suffered from the long decline in natural-gas prices. Unlike low-cost leader Southwestern Energy (NYSE:SWN), which has low enough break-even costs to survive even at current gas prices, PetroQuest, EXCO Resources (NYSE: XCO), and several other producers have much higher costs that have forced them to seek oil and natural gas liquids plays that fetch better returns.

For PetroQuest, arguably the best opportunity for reduced costs and better yields of more lucrative resources comes from its holdings in the Mississippi Lime area. Although its roughly 31,000 acres doesn't come close to the seven-figure net acreage that SandRidge Energy (NYSE: SD) owns, PetroQuest still benefits from the horizontally oriented play, which makes it more economical to drill and boosts production. Chesapeake Energy (OTC:CHKA.Q) is also a major player in the area, although it has been looking to shed assets and create joint ventures in an effort to consolidate its massive holdings and retrench its operations.

For PetroQuest to improve, it really needs to see energy prices move higher. That just hasn't happened over the past year, and the company's ugly financials show the consequences if the gas market doesn't cooperate with PetroQuest.

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.