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 Boyd Gaming (NYS: BYD) 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 Boyd Gaming.
What We Want to See
Pass or Fail?
5-Year Annual Revenue Growth > 15%
1-Year Revenue Growth > 12%
Gross Margin > 35%
Net Margin > 15%
Debt to Equity < 50%
Current Ratio > 1.3
Return on Equity > 15%
Normalized P/E < 20
Current Yield > 2%
5-Year Dividend Growth > 10%
2 out of 9
Source: Capital IQ, a division of Standard & Poor's. NM = not meaningful due to negative earnings. Total score = number of passes.
With only two points, Boyd Gaming comes up snake eyes for investors. The casino industry has largely recovered from the financial crisis, but Boyd is still having major problems.
Boyd is probably best-known for its stake in the Borgata casino in Atlantic City. It also has properties in the Mississippi River basin, as well as off-strip casinos in Las Vegas.
Gaming is truly a tale of two markets right now. In Asia, huge growth in Macau and Singapore has helped Wynn Resorts (NAS: WYNN) , Melco Crown Entertainment (NAS: MPEL) , and Las Vegas Sands (NYS: LVS) post some amazing results. But with big restrictions on who's eligible to build in those tightly controlled markets, many other companies find themselves locked out of these lucrative markets.
In the U.S., casino companies are struggling. Both Boyd and Isle of Capri Casinos (NAS: ISLE) are struggling with profitability, while Ameristar Casinos (NAS: ASCA) is profitable but growing very slowly. The exception is Penn National (NAS: PENN) , which has done a good job of taking advantage of opportunities to get into the Vegas market on the cheap.
For Boyd, success depends on a recovery in gaming activity domestically. But as long as growth remains confined to blocked-off Asian markets, Boyd isn't going to reach perfection.
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 Ameristar Casinos. 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.
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