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 C&J Energy Services (NYSE: CJES) 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 C&J Energy Services.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 129.9%* Pass
  1-Year Revenue Growth > 12% 210.6% Pass
Margins Gross Margin > 35% 41.5% Pass
  Net Margin > 15% 21.4% Pass
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 2.83 Pass
Opportunities Return on Equity > 15% 64.2% Pass
Valuation Normalized P/E < 20 5.33 Pass
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
  Total Score   8 out of 10

Source: S&P Capital IQ. Total score = number of passes. * Three-year growth rate.

With eight points, C&J posts a great score for a young company. As a company helping with an up-and-coming technology in the energy industry, C&J has huge potential to see its growth rate continue into the future.

C&J is at the forefront of the shale gas industry, providing hydraulic fracturing services and materials necessary for horizontal drilling. Operating in the energy-rich areas in New Mexico, Texas, Oklahoma, and Louisiana, the company serves a distinguished clientele of exploration and production companies that includes EXCO Resources (NYSE: XCO) and EOG Resources (NYSE: EOG).

C&J is doing everything right operationally. It's been able to expand without taking on debt, and it plans to boost its hydrofracking fleet by 50% to nine units by the end of the year. With all of its rigs in oil and liquids production, C&J also doesn't stand to lose out from planned natural gas production cuts.

Of course, hydraulic fracturing has also attracted attention from much larger competitors. Halliburton (NYSE: HAL) is becoming a giant in U.S. shale gas, dwarfing C&J in size although reaping a much slower growth rate. That may be why C&J shares have lost nearly half their value since the company's IPO last July.

For C&J to stay on top, it needs to keep growing and survive assaults on hydrofracking as an industry practice. With no dividend likely in the near future, C&J won't reach perfection, but it's a potential growth monster if the hydrofracking market keeps expanding.

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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