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 and then decide whether Polypore International (NYSE: PPO) 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 Polypore International.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 9.5% Fail
  1-Year Revenue Growth > 12% 20.2% Pass
Margins Gross Margin > 35% 41.9% Pass
  Net Margin > 15% 12.1% Fail
Balance Sheet Debt to Equity < 50% 157.7% Fail
  Current Ratio > 1.3 3.20 Pass
Opportunities Return on Equity > 15% 21.7% Pass
Valuation Normalized P/E < 20 35.07 Fail
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
  Total Score   4 out of 10

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

Polypore isn't seeing positive market sentiment filtering through to its 4-point score. But the company has seen its stock soar on the back of the trend toward electric vehicles.

Polypore makes high-tech membranes that are used for two primary purposes. First, the company's energy-storage segment makes membranes that are essential parts of lithium batteries, which you'll find in everything from laptops to hybrid cars. Meanwhile, Polypore's separations-media segment has health-care applications, helping to oxygenate blood and make hemodialysis easier. Nxstage Medical (Nasdaq: NXTM) is one of the company's customers on the medical-equipment side of the business.

Of these, the battery business is more in vogue. With EnerSys (NYSE: ENS) and Exide Technologies (Nasdaq: XIDE) among its customers, Polypore has seen huge demand quarter after quarter. Earlier this year, CEO Robert Toth said that the company would bring new capacity online and described its position in the industry as being "at the front end of long-term secular trends."

Compared with competitor Pall (NYSE: PLL), Polypore sports faster growth and better returns on equity, but also much higher debt levels. Moreover, at a premium valuation, Polypore doesn't have much room for error, as shares sold off after its latest earnings report earlier last week -- despite beating estimates and projecting reasonable growth for the quarter ahead.

Polypore isn't absolutely perfect, but its long-term shareholders have to be pleased with its performance. If the company can keep taking advantage of the electric-battery trend, then Polypore could well deliver perfection before it's through.

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.