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 Juniper Networks
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 Juniper Networks.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Growth||5-Year Annual Revenue Growth > 15%||14.4%||Fail|
|1-Year Revenue Growth > 12%||21.0%||Pass|
|Margins||Gross Margin > 35%||66.2%||Pass|
|Net Margin > 15%||12.9%||Fail|
|Balance Sheet||Debt to Equity < 50%||14.3%||Pass|
|Current Ratio > 1.3||3.00||Pass|
|Opportunities||Return on Equity > 15%||8.7%||Fail|
|Valuation||Normalized P/E < 20||24.78||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 & Poor's. Total score = number of passes.
With just four points, Juniper Networks hasn't been connecting well with shareholders lately. The entire networking sector has had problems, and it remains to be seen whether Juniper can take advantage to distinguish itself from its peers.
When it comes to networking, the elephant in the room is Cisco Systems
In particular, Juniper has tried to get past Cisco through innovation. For several years, Juniper has spent a much larger percentage of its revenue on research and development than either Cisco or Brocade Communications
Concerns about an economic slowdown have also weighed on the stock. AT&T
Even after its big share price drop, Juniper still doesn't carry the bargain valuation you might expect. Until it can turnaround, Juniper isn't going to look like a perfect stock.
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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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of AT&T, Riverbed Technology, and Cisco Systems, as well as writing puts on Riverbed Technology. 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.