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 Beam (NASDAQ:BEAM.DL) 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 Beam.


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


2 out of 10

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

Since we looked at Beam last year, the company has had its score slashed in half, as rising debt levels and falling revenue growth cost it two points. The stock, though, has done well, rising nearly 25% in the past year.

Beam is best known for its Jim Beam bourbon brand. But it also has a number of other whiskeys under its umbrella. Former parent Fortune Brands spun out Beam as part of its breakup into its component businesses in 2011.

Beam is a relatively small player in the liquor space. But even though Diageo (NYSE:DEO) is about 10 times bigger than Beam, both players have been fairly successful with international expansion and growth. While Diageo has seen big growth in the Asian region, Beam's sales growth has come from across the globe, with Europe, South America, and the Asia-Pacific area all providing good results. That gives Beam a competitive advantage over rivals Brown-Forman (NYSE:BF.B) and Constellation Brands (NYSE:STZ), which have had less success internationally.

Beam has also benefited from overall interest in premium brands. Even as Boston Beer (NYSE:SAM) has had to deal with up-and-coming microbrewer competition, investors in spirits have gravitated toward ultra-premium beverages.

For Beam to improve, it needs to focus on building its brand awareness to crack into the upper echelons of the industry. If it can find a particular niche to dominate, then Beam could easily move closer to perfection in the years to come.

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.