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 Oncothyreon (Nasdaq: ONTY) 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 Oncothyreon.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-year annual revenue growth > 15% (47.8%) Fail
  1-year revenue growth > 12% (92.4%) Fail
Margins Gross margin > 35% 100% Pass
  Net margin > 15% NM NM
Balance sheet Debt to equity < 50% 40.6% Pass
  Current ratio > 1.3 10.03 Pass
Opportunities Return on equity > 15% (118.7%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current yield > 2% 0% Fail
  5-year dividend growth > 10% 0% Fail
       
  Total Score   3 out of 8

Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful; Oncothyreon had negative earnings and negligible revenue during the period. Total score = number of passes.

With just three points, Oncothyreon hasn't found a miracle cure to achieve perfect stock status. The immunotherapy developer has some solid prospects, but the company lags behind many of its better-known peers in the biotech realm.

Oncothyreon is on a mission to develop a cure for lung cancer. The company's drug Stimuvax attempts to get a patient's immune system to attack the MUC-1 protein, which is expressed by certain types of cancer. The method is similar to what Dendreon's (Nasdaq: DNDN) Provenge does to try to build immunity to prostate cancer cells. Bristol-Myers Squibb (NYSE: BMY) had similar success with its Yervoy melanoma treatment.

Stimuvax is in a phase 3 trial right now, but as promising as that sounds, though, it isn't a surefire road to success. Also, several companies, including GlaxoSmithKline (NYSE: GSK) and CEL-SCI (AMEX: CVM), have similar immune-targeted drugs in development.

Like most small drug companies, Oncothyreon isn't profitable and won't be unless Stimuvax comes through. But with such a huge market, a success could mean a big payday for the company. Oncothyreon isn't the perfect stock for conservative investors, but those willing to take a chance on the company's prospects could receive rich rewards if Stimuvax shows promising trial results and eventually gains Food and Drug Administration approval.

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 GlaxoSmithKline. Motley Fool newsletter services have recommended buying shares of GlaxoSmithKline. 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.