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 Citrix Systems (NAS: CTXS) 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 Citrix Systems.
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%
5 out of 10
Source: S&P Capital IQ. Total score = number of passes.
Citrix Systems finishes with a middle-of-the-road score of five. The company has made a major move into the cloud-computing space in the past several years, but faces strong competition as it tries to keep its foothold in the rapidly growing industry.
Citrix originally built a name for itself by helping companies securely access their information across every office and employee. By using central servers rather than keeping data on countless desktop computers, Citrix allowed companies to manage their data in a cost-effective manner.
But when Citrix bought XenSource in 2007, it became a full-fledged player in what would eventually become the budding cloud-software market. XenSource software is still important for the company, as Amazon's (NAS: AMZN) EC2 platform uses it. The company also partnered with Microsoft (NAS: MSFT) to accelerate its desktop virtualization business.
Earlier this week, Citrix announced that it had acquired cloud-computing storage and sharing company ShareFile. Although Citrix had initially wanted to buy out competitor Box.net, whose 7 million users at 100,000 corporate customers dwarfs ShareFile's 2 million users and 14,000 business customers, the acquisition will still help Citrix match up against VMware (NYS: VMW) and Linux expertRed Hat (NYS: RHT) in the cloud-support space.
Whether Citrix advances toward perfection depends a lot on what strategy it follows from here. With most players focused on the U.S., international expansion could be a huge opportunity. If Citrix can beat its rivals abroad, it could easily become a perfect stock.
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 Citrix Systems 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 contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, VMware, and Amazon.com, as well as creating a bull call spread position in Microsoft. 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 a disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.