Is Polypore International the Perfect Stock?
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 Polypore International (NYS: PPO) 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 Polypore International.
Factor | What We Want to See | Actual | Pass or Fail? |
|---|---|---|---|
Growth | 5-Year Annual Revenue Growth > 15% | 9.5% | Fail |
1-Year Revenue Growth > 12% | 20.2% | Pass | |
Margins | Gross Margin > 35% | 41.9% | Pass |
Net Margin > 15% | 12.1% | Fail | |
Balance Sheet | Debt to Equity < 50% | 157.7% | Fail |
Current Ratio > 1.3 | 3.20 | Pass | |
Opportunities | Return on Equity > 15% | 21.7% | Pass |
Valuation | Normalized P/E < 20 | 35.07 | Fail |
Dividends | Current Yield > 2% | 0.0% | Fail |
5-Year Dividend Growth > 10% | 0.0% | Fail | |
Total Score | 4 out of 10 |
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
Polypore isn't seeing positive market sentiment filtering through to its 4-point score. But the company has seen its stock soar on the back of the trend toward electric vehicles.
Polypore makes high-tech membranes that are used for two primary purposes. First, the company's energy-storage segment makes membranes that are essential parts of lithium batteries, which you'll find in everything from laptops to hybrid cars. Meanwhile, Polypore's separations-media segment has health-care applications, helping to oxygenate blood and make hemodialysis easier. Nxstage Medical (NAS: NXTM) is one of the company's customers on the medical-equipment side of the business.
Of these, the battery business is more in vogue. With EnerSys (NYS: ENS) and Exide Technologies (NAS: XIDE) among its customers, Polypore has seen huge demand quarter after quarter. Earlier this year, CEO Robert Toth said that the company would bring new capacity online and described its position in the industry as being "at the front end of long-term secular trends."
Compared with competitor Pall (NYS: PLL) , Polypore sports faster growth and better returns on equity, but also much higher debt levels. Moreover, at a premium valuation, Polypore doesn't have much room for error, as shares sold off after its latest earnings report earlier last week -- despite beating estimates and projecting reasonable growth for the quarter ahead.
Polypore isn't absolutely perfect, but its long-term shareholders have to be pleased with its performance. If the company can keep taking advantage of the electric-battery trend, then Polypore could well deliver perfection before it's through.
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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At the time thisarticle was published Fool contributorDan Caplingerdoesn't own shares of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of NxStage Medical. 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.
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