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 The Buckle
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 Buckle.
What We Want to See
Pass or Fail?
|Growth||5-year annual revenue growth > 15%||13.6%||Fail|
|1-year revenue growth > 12%||5.7%||Fail|
|Margins||Gross margin > 35%||49.9%||Pass|
|Net margin > 15%||14.2%||Fail|
|Balance sheet||Debt to equity < 50%||0%||Pass|
|Current ratio > 1.3||2.67||Pass|
|Opportunities||Return on equity > 15%||38.5%||Pass|
|Valuation||Normalized P/E < 20||15.30||Pass|
|Dividends||Current yield > 2%||1.8%||Fail|
|5-year dividend growth > 10%||24.2%||Pass|
|Total Score||6 out of 10|
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
Buckle scores a respectable six points and just barely misses on a couple more. Retail has been a tough business during the recession, but Buckle seems to be holding up better than many of its competitors.
Over the past few years, Buckle has made a big splash in the retail world. Even as hot companies such as Abercrombie & Fitch
The key to Buckle's success is in its impressive margins. While they fall short of our 15% goal, Buckle's net margin dominates those of Abercrombie & Fitch and Aeropostale, as well as Gap
Buckle wowed investors last week with amazingly strong same-store sales figures for March. With analysts expecting a decline in comps, Buckle posted an 8.4% increase for the five weeks that ended April 2.
Surprising strength across the board has led some to wonder if retailers in general are finally pulling out of the doldrums. Discriminating investors should gravitate to the strongest players in the industry. Although Buckle isn't a perfect stock, it has good potential going forward to perhaps become one.
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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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.