Is Barnes & Noble 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, then decide if Barnes & Noble (NYS: BKS) 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 Barnes & Noble.
Factor | What We Want to See | Actual | Pass or Fail? |
|---|---|---|---|
Growth | 5-Year Annual Revenue Growth > 15% | 6.2% | Fail |
1-Year Revenue Growth > 12% | 20.5% | Pass | |
Margins | Gross Margin > 35% | 25.6% | Fail |
Net Margin > 15% | (1.1%) | Fail | |
Balance Sheet | Debt to Equity < 50% | 56.5% | Fail |
Current Ratio > 1.3 | 1.01 | Fail | |
Opportunities | Return on Equity > 15% | (8.6%) | Fail |
Valuation | Normalized P/E < 20 | NM | NM |
Dividends | Current Yield > 2% | 0.0% | Fail |
5-Year Dividend Growth > 10% | 0.0% | Fail | |
Total Score | 1 out of 9 |
Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful due to negative earnings over the period. Total score = number of passes.
With just a single point, Barnes & Noble isn't hitting the best-seller lists. Despite seeing a major competitor disappear from the retail landscape, the bookseller's prospects don't look all that much more promising.
It's only natural to think that Borders' bankruptcy should help boost surviving competitors like Barnes & Noble. Indeed, investors pushed the stock higher recently when the Borders liquidation started happening. Yet similar experiences with Blockbuster after the Movie Gallery shutdown and Best Buy (NYS: BBY) after Circuit City's demise show that Barnes & Noble won't get a free ride. In fact, it's likely to see a drop in business during the liquidation, as it did when Borders shut down several hundred stores earlier this year.
Unfortunately, though, B&N's main competition remains Amazon.com (NAS: AMZN) . The bricks-and-mortar giant has reached out to booted-out Amazon affiliates, but without the vastly broader inventory that Amazon offers, B&N can't really compete.
One hope for the company has been its Nook e-reader. But between Amazon's Kindle for dedicated readers and tablets like Apple's (NAS: AAPL) iPad and Motorola Mobility's (NYS: MMI) Zoom, the Nook could find itself squeezed into a corner.
The "perfect" ending for shareholders looks like accepting Liberty Media's (NAS: LBTYA) bid to buy out Barnes & Noble. Based on the company's financials, B&N doesn't seem to have another way out.
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 hereto add Barnes & Noble 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 our13 Steps to Investing Foolishly.
At the time thisarticle was published Fool contributorDan Caplingerdoesn't own shares of the companies mentioned in this article.The Motley Fool owns shares of Apple and Best Buy.Motley Fool newsletter serviceshave recommended buying shares of Best Buy, Apple, and Amazon.com, as well as creating a bull call spread position in Apple. We Fools may not 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.
