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 (NYSE: BKE) 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 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 (NYSE: ANF) and Aeropostale (NYSE: ARO) have posted respectable long-term stock performance, Buckle has blown them away with 20% average annual returns over the past decade.

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 (NYSE: GPS). Premium retailer Coach (NYSE: COH) manages to best Buckle on margins, but even fellow-high-ender Tiffany (NYSE: TIF) falls short.

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.

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 Buckle 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.