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 MannKind (Nasdaq: MNKD) 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 MannKind.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% (46.2%)* Fail
  1-Year Revenue Growth > 12% (12.9%)* Fail
Margins Gross Margin > 35% NM NM
  Net Margin > 15% NM NM
Balance Sheet Debt to Equity < 50% NM NM
  Current Ratio > 1.3 0.91 Fail
Opportunities Return on Equity > 15% NM NM
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   0 out of 5

Source: S&P Capital IQ. NM = not meaningful; MannKind has reported no current revenue and negative shareholder equity and earnings. Total score = number of passes. *Based on full-year 2011 revenue.

MannKind doesn't manage to get a single point on our scale, which admittedly doesn't work well given the company's current lack of revenue. But the biotech's stock has soared in recent months as investors start to expect more from the company's pipeline.

MannKind's main drug prospect is Afrezza, an inhalable insulin product. For quite a while, the company has struggled with the FDA to gain approval for Afrezza, but the regulatory body set the company back on a couple occasions in 2011.

Because of the strains on financial resources that ongoing trials have cost the company, MannKind has started pursuing licensing arrangements for some of its technology. For instance, it recently made a deal with Tolero Pharmaceuticals that could bring in as much as $130 million in milestone payments. Licensing its inhaler technology could be even more lucrative.

Recently, Fool contributor Max Macaluso suggested that Pfizer (NYSE: PFE) seemed like a good candidate to create a partnership with MannKind. Pfizer has a history in the industry, with the inhalable insulin product Exubera that it licensed from Nektar Therapeutics having failed to make a dent in the injectable insulin market, in which Novo Nordisk (NYSE: NVO) and Eli Lilly (NYSE: LLY) are major players. With Sanofi (NYSE: SNY) taking a commanding position in long-acting insulin with its Lantus product, patients appear to be willing to accept injections for treatment -- at until a convenient and price-effective inhalable product comes to market.

Clearly, MannKind needs to get Afrezza up and running in order to see the biggest possible improvement in its financials. Once it does, investors will be in a better position to evaluate whether the company stands a chance at reaching perfection at some point.

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.

MannKind may not be perfect, but we've got some other ideas you might like better. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

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

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.