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 DISH Network (NAS: DISH) 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 DISH Network.
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%
3 out of 8
Source: S&P Capital IQ. NM = not meaningful due to negative shareholder equity. Total score = number of passes.
Since we looked at DISH Network last year, the company has picked up a point. Growth at the satellite-TV provider has picked up, but the company still has a weak balance sheet and faces tough competition.
This time last year, DISH Network had done two things that marked a new direction for the company: It settled its DVR dispute with TiVo (NAS: TIVO) , and it bought Blockbuster assets out of bankruptcy. Many analysts wondered exactly what DISH would do with Blockbuster, and the past year has shown some hints.
On one hand, DISH is fighting hard to stay relevant as video-streaming from Netflix (NAS: NFLX) and other competitors becomes more pervasive. Earlier this year, DISH expanded its content agreements with Time Warner to provide instant access to popular HBO shows, including The Sopranos and Game of Thrones.
But DISH's long-term plans are more ambitious. The company is considering using its satellite-radio licenses to build a 4G LTE network that would deliver wireless content independent of existing telecom mobile providers. By moving beyond the traditional television services that rival DirecTV (NAS: DTV) and land-based cable operators focus on, DISH could make itself stand out from the crowd.
With the long-range nature of these strategies, DISH won't be a perfect stock anytime soon. But the company has laid the groundwork for some interesting developments in the years ahead that could eventually propel DISH's score higher.
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 contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Netflix. 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.
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