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 Regeneron Pharmaceuticals (Nasdaq: REGN) 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 Regeneron Pharmaceuticals.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 47.0% Pass
  1-Year Revenue Growth > 12% 14.7% Pass
Margins Gross Margin > 35% (2.8%) Fail
  Net Margin > 15% (25.1%) Fail
Balance Sheet Debt to Equity < 50% 30.9% Pass
  Current Ratio > 1.3 2.90 Pass
Opportunities Return on Equity > 15% (26.0%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   4 out of 9

Source: Capital IQ, a division of Standard and Poor's. NM = not meaningful due to negative earnings. Total score = number of passes.

With four points, Regeneron Pharmaceuticals isn't approaching perfection. The development-stage drugmaker is far from a low-risk proposition, but it has several promising opportunities in its pipeline.

Unlike many startup drug companies, Regeneron has a big pipeline with three drugs in phase 3 trials. Last year, gout treatment Arcalyst passed one and failed one of its clinical trials. The drug is currently approved for a rare disorder, but expanding its scope to include a gout indication would be much more lucrative for the company. In addition to Arcalyst, Regeneron also has a drug called aflibercept, which is being tested against cancer under the name Zaltrap and against macular degeneration as VEGF Trap-Eye. Zaltrap has had promising results, with the company saying that combining the drug with chemotherapy improved colon cancer survival rates.

But things haven't gone perfectly for Regeneron . In December, the Food and Drug Administration put an anti-nerve growth factor drug it was developing with Sanofi (NYSE: SNY) on hold. That affected not only Regeneron but also AstraZeneca (NYSE: AZN) and Johnson & Johnson (NYSE: JNJ), which were also developing similar drugs.

But Regeneron has a fallback position even if its current drug pipeline doesn't pan out. With a drug discovery deal with Sanofi, Regeneron will have work to do at least through 2017.

Regeneron hasn't reached perfection yet. But like many promising drugmakers, the company is just one success away from a potential gold mine. That's a risk-reward ratio that many risk-tolerant investors should find appealing.

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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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. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Johnson & Johnson. 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.