Has Kopin Become 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 Kopin (NAS: KOPN) 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 Kopin.
Factor | What We Want to See | Actual | Pass or Fail? |
|---|---|---|---|
Growth | 5-Year Annual Revenue Growth > 15% | 11.5% | Fail |
1-Year Revenue Growth > 12% | (6.5%) | Fail | |
Margins | Gross Margin > 35% | 34.0% | Fail |
Net Margin > 15% | (0.6%) | Fail | |
Balance Sheet | Debt to Equity < 50% | 0% | Pass |
Current Ratio > 1.3 | 6.72 | Pass | |
Opportunities | Return on Equity > 15% | 0.1% | Fail |
Valuation | Normalized P/E < 20 | NM | NM |
Dividends | Current Yield > 2% | 0% | Fail |
5-Year Dividend Growth > 10% | 0% | Fail | |
Total Score | 2 out of 9 |
Source: S&P Capital IQ. NM = not meaningful due to negative earnings. Total score = number of passes.
Since we looked at Kopin last year, the company hasn't improved on its two-point score. Moreover, the stock has lost a third of its value, as Kopin went from earning a profit to suffering a loss in the past year.
By all appearances, Kopin should be thriving. As a maker of small flat-panel displays, the company is squarely in the middle of huge demand for smartphones and other small mobile devices. By providing its III-V semiconductor circuits to TriQuint Semiconductor (NAS: TQNT) and Skyworks Solutions (NAS: SWKS) , Kopin gains indirect exposure to the long success of the iPhone, which has helped boost Kopin's revenue growth immensely in recent years.
Unfortunately, Kopin's other business segment doesn't have the same favorable trends pushing it forward. Supplying Raytheon (NYS: RTN) and other defense customers with weapon sights and other battle-hardened applications keeps Kopin diversified, but with budget cuts hurting the entire defense sector, Kopin's revenue has been hurt.
To try to get back to profitability, Kopin has implemented cost reduction strategies, including consolidating its two U.S. manufacturing plants into a single location. But its biggest prospect appears to be its Golden-i hands-free-computing headset, and it's working with Motorola Solutions (NYS: MSI) to release Golden-i headsets for general industrial use by the end of this year.
For Kopin to improve, it needs to get as efficient as possible while focusing on potential growth areas. With such strong headwinds from the defense sector, however, it may be a while before Kopin can start moving toward perfection.
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.
Kopin is one way to bet on the tech revolution, but we think there's a better play. Check out our new free report: "3 Hidden Winners of the iPhone, iPad, and Android Revolution." The report details three other component plays inside Apple products that are poised for a bright future as smartphones continue seeing explosive growth. To get your own copy of the report, just click here now -- it's free!
Click hereto add Kopin to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.
At the time thisarticle was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of TriQuint Semiconductor and Raytheon. 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 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
