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 Accuray (Nasdaq: ARAY) 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 Accuray.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 33.5% Pass
  1-Year Revenue Growth > 12% (4.5%) Fail
Margins Gross Margin > 35% 50.8% Pass
  Net Margin > 15% 1.6% Fail
Balance Sheet Debt to Equity < 50% 0.0% Pass
  Current Ratio > 1.3 3.08 Pass
Opportunities Return on Equity > 15% 1.9% Fail
Valuation Normalized P/E < 20 124.03 Fail
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   4 out of 10

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

Accuray only manages a mediocre score of 4. But the medical device company is on the cutting edge of cancer treatment and could easily see a bright future ahead.

Accuray is among the handful of companies moving to revolutionize how patients get medical treatment. While Intuitive Surgical (Nasdaq: ISRG) has automated invasive surgery techniques, Accuray provides radiological treatments that don't involve cutting patients open at all. Unlike Intuitive Surgical, though, Accuray faces plenty of competition. Companies including Siemens (NYSE: SI) and Varian Medical Systems (NYSE: VAR) have radiation systems that compete against Accuray's CyberKnife product.

In response to competitive pressure, Accuray made a bid to buy out TomoTherapy (Nasdaq: TOMO) for $277 million. That's a big move for a tiny company, but it would eliminate a competitor with almost as much future potential as Accuray has.

Accuray faces the same challenges as many small companies: high valuations that haven't yet fully panned out on the bottom line. But with demographic and technological trends at its back, Accuray could easily see itself moving toward perfection in the years ahead.

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.

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