Is MetroPCS the Perfect Stock?

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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 and then decide whether MetroPCS (NYS: PCS) 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:

With those factors in mind, let's take a closer look at MetroPCS.

Factor

What We Want to See

Actual

Pass or Fail?

Growth5-Year Annual Revenue Growth > 15%29.2%Pass
 1-Year Revenue Growth > 12%17.9%Pass
MarginsGross Margin > 35%41.5%Pass
 Net Margin > 15%5.2%Fail
Balance SheetDebt to Equity < 50%172.6%Fail
 Current Ratio > 1.33.54Pass
OpportunitiesReturn on Equity > 15%9.0%Fail
ValuationNormalized P/E < 2011.36Pass
DividendsCurrent Yield > 2%0.0%Fail
 5-Year Dividend Growth > 10%0.0%Fail
    
 Total Score 5 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

With 5 points, MetroPCS doesn't look all that bad. But the score doesn't reflect the company's huge struggles at the low end of its industry.

At first glance, MetroPCS seems to be in the thick of one of the hottest sectors of the market: wireless communications. But unlike AT&T (NYS: T) and Verizon (NYS: VZ) , which make lots of money from customers who choose expensive phone and data plans, MetroPCS focuses on prepaid customers who don't want the burden of a long-term contract -- or who can't pass a credit check.

That puts MetroPCS squarely in the crosshairs of competitors like America Movil (NYS: AMX) and its Net10 and Tracfone franchises, as well as upstart Leap Wireless (NAS: LEAP) and struggling Sprint Nextel (NYS: S) . In the past year, MetroPCS did well to build up subscriber counts and earn strong profits, digging itself out of the hole that the financial crisis left it in.

More recently, though, that trend has come to a halt. In its most recent quarter, the company disappointed with weak earnings, sending shares plummeting more than 40% in the first four days of the trading week.

Going forward, the company is trying to upgrade itself, offering Android-based smartphones to customers. But with huge amounts of debt, low net margins, and a complete lack of dividend income, MetroPCS isn't going to be a perfect stock anytime soon.

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.

Add MetroPCS toMy 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 our13 Steps to Investing Foolishly.

At the time this article was published Fool contributorDan Caplingerdoesn't own shares of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of AT&T. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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