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 Boston Beer (NYSE: SAM) 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 Boston Beer.


What We Want to See


Pass or Fail?

Growth 5-year annual revenue growth > 15% 13.9% Fail
  1-year revenue growth > 12% 10.3% Fail
Margins Gross margin > 35% 55.3% Pass
  Net margin > 15% 10.1% Fail
Balance sheet Debt to equity < 50% 0% Pass
  Current ratio > 1.3 1.70 Pass
Opportunities Return on equity > 15% 28.1% Pass
Valuation Normalized P/E < 20 23.63 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.

Boston Beer only manages to brew up a score of four. However, the maker of Sam Adams has bucked the trend in the beer industry with its niche craft offerings.

It's been a tough time for big beer producers. Both Anheuser-Busch InBev (NYSE: BUD) and Molson Coors Brewing (NYSE: TAP) have seen their North American volume sales figures drop over the past year. On a dollar basis, Anheuser-Busch's revenue rose by less than 1%.

But the story is very different among craft brewers. In 2010, craft-brew volume soared 11%. And although public craft brewers Boston Beer and Red Hook-maker Craft Brewers Alliance (Nasdaq: HOOK) haven't seen quite that level of growth, they're in a great position to benefit from the trend -- as well as to pick up other promising microbrewers along the way.

Still, there may be clouds on the horizon. In its most recent quarter, Boston Beer missed earnings estimates by a wide margin, due largely to higher costs of marketing and promotion. But with the company maintaining its full-year guidance, the hit that shares took may be overblown.

Boston Beer has performed well financially in a tough market for its industry. If it can continue to capitalize on the trend toward smaller, better-brewed beer, then the stock could give shareholders a refreshing ride.

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 ."