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 Rofin-Sinar Technologies
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 Rofin-Sinar Technologies.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
|
Growth |
5-Year Annual Revenue Growth > 15% |
7.3% |
Fail |
|
1-Year Revenue Growth > 12% |
41.1% |
Pass |
|
|
Margins |
Gross Margin > 35% |
38.8% |
Pass |
|
Net Margin > 15% |
10.0% |
Fail |
|
|
Balance Sheet |
Debt to Equity < 50% |
4.8% |
Pass |
|
Current Ratio > 1.3 |
3.49 |
Pass |
|
|
Opportunities |
Return on Equity > 15% |
13.6% |
Fail |
|
Valuation |
Normalized P/E < 20 |
12.54 |
Pass |
|
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.
With a score of five, Rofin-Sinar Technologies cuts a precisely half-perfect showing. The laser maker has seen strong revenue growth and offers a reasonable valuation, but like many tech companies, it hasn't seen fit to return money to shareholders through dividends.
Rofin-Sinar makes lasers that help companies in a wide variety of industries improve their manufacturing processes. Formed as a spinoff from German conglomerate Siemens
But Rofin-Sinar has faced several challenges recently. Slow economic activity has hurt the largely cyclical company. In addition, the surge in fiber-laser technology that IPG Photonics
Moreover, earnings haven't given investors the confidence they'd like to have in the company. Last week, Rofin-Sinar guided its fiscal first-quarter revenue and earnings targets down sharply, sending shares tumbling from what had been a nice recovery in October.
At current prices, Rofin-Sinar could well reward patient investors who believe that a faster economic expansion is coming. If you're willing to pay a little more, though, consider laser-optic maker II-VI
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.
Click here to add Rofin-Sinar Technologies to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.
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."
