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 AeroVironment (Nasdaq: AVAV) 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 AeroVironment.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 16.3% Pass
  1-Year Revenue Growth > 12% 26.3% Pass
Margins Gross Margin > 35% 38.8% Pass
  Net Margin > 15% 8.3% Fail
Balance Sheet Debt to Equity < 50% 0.0% Pass
  Current Ratio > 1.3 5.85 Pass
Opportunities Return on Equity > 15% 10.4% Fail
Valuation Normalized P/E < 20 32.76  Fail
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   5 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

AeroVironment doesn't fly high with a score of 5. The company is still on a growth trajectory, but headwinds could keep it from getting closer to perfection in the years ahead.

AeroVironment combines two interesting businesses in a single company. On one hand, it builds unmanned aircraft systems that the U.S. military is interested in. On the other, the company seeks to provide home charging stations for electric vehicles. With car companies like Tesla (Nasdaq: TSLA) and Nissan counting on the future of electric autos, they'll rely on AeroVironment and other companies to provide the networks that will help their customers keep charged up.

So far, the company has done quite well, posting strong earnings growth and expecting double-digit growth in the coming year. But the company will face challenges along the way. In the electric charging market, big companies like General Electric (NYSE: GE) should start providing competition later this year.

Moreover, AeroVironment suffered a setback last week when one of its unmanned aircraft crashed during a test flight. Competing against defense giants Boeing (NYSE: BA) and Northrop Grumman (NYSE: NOC), the small company can't afford to make any mistakes. But if it can finally start to execute, AeroVironment has a lot more room to run for shareholders seeking fast growth.

AeroVironment isn't for the faint of heart, but the company has a lot of potential. It's not the perfect stock right now, but the future could have it soaring above the competition if things play out well.

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.

Click here to add AeroVironment to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our 13 Steps to Investing Foolishly.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. AeroVironment is a Motley Fool Rule Breakers pick. The Fool owns shares of Northrop Grumman. 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.