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 IMAX (NYSE: IMAX) 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 IMAX.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 13.6% Fail
  1-Year Revenue Growth > 12% 1.9% Fail
Margins Gross Margin > 35% 49.8% Pass
  Net Margin > 15% 26.7% Pass
Balance Sheet Debt to Equity < 50% 21.8% Pass
  Current Ratio > 1.3 1.51 Pass
Opportunities Return on Equity > 15% 45% Pass
Valuation Normalized P/E < 20 128.53 Fail
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   5 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at IMAX last year, the movie theater specialist has dropped a point. Slowing revenue growth reflects a struggling global economy and bad overall box-office performance for the movie industry, but the company continues to expand its geographic reach across the globe.

The key to understanding IMAX's success is that it's uniquely tied to true blockbuster movie hits. For instance, Time Warner (NYSE: TWX) scored huge sales from its Harry Potter series, and IMAX cashed in as well, generating more than $23 million in box-office receipts during the opening weekend of its final installment. But when Disney (NYSE: DIS) had a relative flop in Cars 2 last summer, IMAX shares fell -- and after a first half of 2011 with relatively few hot films, the stock suffered big losses.

But IMAX continues its global strategy of getting itself into every market it can penetrate. With new deals for more screens in China and Indonesia in just the past month, the company is banking on premium cinema outlasting conventional rivals in emerging markets.

The real test for IMAX will be whether 3-D takes hold. RealD (NYSE: RLD) has seen recent success from 3-D movie popularity, but an all 3-D television channel venture between IMAX, Sony (NYSE: SNE), and Discovery Communications hasn't yet taken off.

For IMAX, movie popularity will come and go. But the company's growth policy should help it take root and set the stage for even more sales down the road. That won't necessarily pan out in the short run, but longer-term investors should eventually get a payoff from IMAX.

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.

IMAX has some long-term potential, but don't settle for just any growth stock. Find some more attractive companies by accepting my invitation to receive the Fool's latest special report absolutely free. Inside, you'll learn the names of three promising stocks for the long haul. But don't wait -- click here and read it today.

Click here to add IMAX to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Discovery Communications, Walt Disney, and IMAX. 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.