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.


What We Want to See


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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.