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 MAKO Surgical (UNKNOWN:UNKNOWN) 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 MAKO Surgical.


What We Want to See


Pass or Fail?


5-year annual revenue growth > 15%




1-year revenue growth > 12%




Gross margin > 35%




Net margin > 15%



Balance sheet

Debt to equity < 50%




Current ratio > 1.3




Return on equity > 15%




Normalized P/E < 20




Current yield > 2%




5-year dividend growth > 10%




Total score


5 out of 9

Source: S&P Capital IQ. NM = not meaningful due to negative earnings. Total score = number of passes.

Since we looked at MAKO Surgical last year, the company hasn't seen its score change. But investors weren't as lucky with its share price, which has plunged by half in the past year.

MAKO has become well-known for its RIO systems, which allow doctors to do orthopedic surgery robotically. Following in the steps of Intuitive Surgical (NASDAQ:ISRG) and its da Vinci robotic surgical system, MAKO has tried to further the use of robotics in medicine for procedures that have become increasingly necessary for an active but aging population.

But 2012 has been a horrible year for MAKO. In announcing its first-quarter results, the company said that sales of systems had fallen well below expectations and lowered its guidance for the remainder of 2012. The second quarter brought even more disappointment, and most recently, news that privately held Blue Belt Technologies and its NavioPFS orthopedic robotic surgical system received FDA approval has pushed the stock down further.

Even worse, provisions of health-care reform could truly smack MAKO. Starting next year, a 2.3% excise tax on medical devices will take effect. Because the tax is on revenue rather than profits, it'll hit MAKO and Hansen Medical (NASDAQ:HNSN) especially hard, as they're not making money even before the tax. Even big companies Medtronic (NYSE:MDT) and Stryker (NYSE:SYK) will suffer from the tax, with Stryker saying it would need to lay off 5% of its workforce in part due to its effects.

For MAKO to improve, it needs to get past controversies over its RIO systems and start boosting sales. If it can't, then MAKO may never be able to call itself a perfect stock.

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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Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of Intuitive Surgical, MAKO Surgical, and Medtronic. Motley Fool newsletter services recommend Intuitive Surgical and MAKO Surgical. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.