Impressive numbers can entice many investors to fall for a company, but they don't always represent the whole picture. Many investors fail to consider what companies actually do -- and set themselves up for a big mistake.

I'm guilty as charged here. The following admirable metrics left me thinking positively about one particular company:

2005 stock return


2007 stock return


2009 stock return


Gross margin


Net margin


5-year revenue growth


5-year EPS growth


Data: Motley Fool CAPS, Morningstar.

Sure, this company's not perfect -- its stock took a 67% spill in 2008, and not all of its numbers are as glorious as the ones in this table. But lots of people admire this business; nearly 5,500 members of our CAPS community of investors recently expected it to outperform the S&P 500, versus just 145 who expected underperformance.

When good companies go bad
I think some of those folks might be downgrading their expectations soon, as the company's near-term future grows considerably dimmer. The numbers above belong to Transocean (NYSE: RIG), which has found itself in deep sludge following BP's oil spill. Transocean owned the Deepwater Horizon drilling rig, along with the faulty safety device that supposedly would have prevented the rig's destruction and the subsequent catastrophic spill.

I knew that Transocean specialized in offshore oil drilling, but I never stopped to consider the risks involved. Again, that's my fault, since public companies are required to offer exhaustive lists of those risks in their annual 10-K filings. Transocean's latest report lists the following operating hazards:

... blowouts, reservoir damage, loss of production, loss of well control, punch-throughs, craterings, fires and natural disasters such as hurricanes and tropical storms. ... Damage to the environment could also result from our operations, particularly through oil spillage or extensive uncontrolled fires. We may also be subject to property, environmental and other damage claims by oil and gas companies.

I would have been smart to at least consider such risks when weighing the company as a possible investment. If I'd bought shares, my portfolio might now be fouled by out-of-control oil.

Risky businesses
Oil drillers aren't the only companies that regularly face serious risks. A selection of 10-K reports reveal the following pitfalls:

  • As a global company, Nike's (NYSE: NKE) list of risks includes fluctuations in currency exchange rates, exposure to various economic, political and social problems in the nations where it operates, and "failure to obtain high quality endorsers of our products." In the wake of the Tiger Woods scandal and its still-uncertain consequences for Nike, that last point looks prophetic.
  • Among its many risks, Kraft (NYSE: KFT) notes that "increased price volatility for commodities we purchase may affect our profitability." In recent years, the prices of commodities such as rice, wheat, corn and cooking oil have all surged at various points, putting a crunch on Kraft's costs.
  • Many investors don't fully realize who's on the hook for various risks in a given commercial transaction. Boeing (NYSE: BA) helpfully warns potential shareholders that "We enter into fixed-price contracts, which could subject us to losses if we have cost overruns."
  • Labor issues aren't the only peril facing Ford (NYSE: F). The harsh laws of supply and demand could pose another danger. "Many components used in our vehicles are available only from a single supplier," the company cautions. "The exclusive supplier of a key component potentially could exert significant bargaining power over price, quality, warranty claims, or other terms relating to a component."

Keep your eyes open
No company can operate without some risks, but a bad turn for one company doesn't have to destroy your portfolio. Diversifying your dollars across several wonderful companies in a range of industries can could help you turn a possibly big hit into a much smaller dent in your holdings.

When researching investments, make sure you do what BP apparently didn't: Know all your potential hazards going in, and have a plan to deal with them if they ever come true.

What risk caught you off guard and whacked one of your holdings? Share your experiences in the comment box below.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Ford Motor is a Motley Fool Stock Advisor pick. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.