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 InterMune (Nasdaq: ITMN) 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 InterMune.


What We Want to See


Pass or Fail?

Growth 5-year annual revenue growth > 15% 18.6% Pass
  1-year revenue growth > 12% 432.4% Pass
Margins Gross margin > 35% 97.6% Pass
  Net margin > 15% 47.2% Pass
Balance sheet Debt to equity < 50% 86.6% Fail
  Current ratio > 1.3 4.30 Pass
Opportunities Return on equity > 15% 562.6% Pass
Valuation Normalized P/E < 20 38.82 Fail
Dividends Current yield > 2% 0% Fail
  5-year dividend growth > 10% 0% Fail
  Total Score   6 out of 10

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

With a score of six, InterMune does better than many other stocks in reaching for perfection. The drug developer has seen some big ups and downs in the past year, and now some believe that the company is seeking to cash in.

InterMune's big drug is pirfenidone, also known as Esbriet, which treats the lung condition idiopathic pulmonary fibrosis. The drug has been granted orphan drug status both in the U.S. and in Europe, but after an advisory panel originally recommended approval, the Food and Drug Administration rejected the application last May, sending shares plummeting. But then last December, a similar regulatory body in Europe issued a positive recommendation, helping the shares regain ground.

Until last year, the company also had a hepatitis C drug, danoprevir, in development . But InterMune chose to sell its interest in the drug to Roche for $175 million, leaving pirfenidone as its sole lead drug.

Just yesterday, InterMune shares jumped as reports surfaced that the company may be working to sell itself to a larger peer. According to one analyst, Teva Pharmaceutical (Nasdaq: TEVA), AstraZeneca (NYSE: AZN), and Novartis (NYSE: NVS) are among the companies that might be interested in buying InterMune.

With the status of pirfenidone in the U.S. uncertain, InterMune is a speculative play. The company's danoprevir sale helped give the company its first profit in years, but if the company needs to prove it can keep moving forward. Otherwise, a buyout may be the best possible result for shareholders.

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 InterMune 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. Novartis and Teva Pharmaceutical are Motley Fool Global Gains picks. The Fool owns shares of Teva Pharmaceutical. 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.