Is Weatherford's Stock Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Weatherford International (NYSE: WFT) fit the bill? Let's look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Weatherford's story, and we'll be grading the quality of that story in several ways:

• Growth: are profits, margins, and free cash flow all increasing?
• Valuation: is share price growing in line with earnings per share?
• Opportunities: is return on equity increasing while debt to equity declines?
• Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Weatherford's key statistics:

WFT Total Return Price data by YCharts

Source: YCharts.
*Period begins at end of Q4 2009.

WFT Return on Equity data by YCharts

Source: YCharts.
*Period begins at end of Q4 2009.

How we got here and where we're going
Weatherford seems to continue a trend of weakness on this analysis begun with National Oilwell Varco's (NOV 1.35%) three-out-of-nine score earlier this year. Technically, Weatherford's three of seven score is better, but there's nothing particularly great about flat free cash flow (it's been negative nearly the whole time) and plunging profit metrics. What will it take to get Weatherford back out of this hole?

Last year, two of my Foolish colleagues presented side-by-side reasons to either buy Weatherford or to run far away. Since then, Weatherford's gained 35%, so you might think the bull case has won -- but it may be too early to bet on this company for the long haul.

Fool contributor Taylor Muckerman gave us the bull case last year:

• Strong international growth.
• Reduced pricing pressure going forward.
• Internal reorganization to restore the company's accounting integrity.

However, Fool contributor David Lee Smith took the bear side, which contains many of the same arguments as Taylor's article, but flipped to the inverse:

• Too operationally diverse in a specialized environment.
• Overseas growth not showing up on the bottom line.
• A history of shoddy accounting.

Both writers are right. It's tough to trust a company that's had accounting problems in the past, even though it may be making the right moves to straighten its number-crunchers out now. And no amount of growth matters if it continues to force a company to bleed cash. Weatherford has a lot of exposure to Canadian oil sands, for example, but that region needs more infrastructure to really maximize its potential. As long as TransCanada's (TRP 1.16%) Keystone XL pipeline remains stalled in legislative hell, the oil sands -- and Weatherford -- will have to deal with undeveloped opportunities.

One easy way to assess the strength of the oilfield-services industry is to look at how many oilfields its major players actually need to service. Although this is far from a perfect analysis, it helps to see how the growth (or decline) of drilling rigs in the United States affects company profitability:

US Rotary Rigs data by YCharts

Varco avoids this problem largely because it's focused largely on offshore operations, but the correlation is visible for both Weatherford and Halliburton (HAL 1.11%). Halliburton performed respectably on this analysis last year, but I pointed out then that the number of rigs in the field might undermine its growth -- and that appears to have happened, as the company lost some ground on the bottom line since then. Weatherford's position in domestic oilfield services isn't quite as strong as Halliburton's, which blunts some of the downside risk. However, as has been pointed out before, there seems to be less upside to the company's international growth than investors might have hoped for.

Putting the pieces together
Today, Weatherford has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.