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 CBRE Group (NYS: CBG) 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 CBRE Group.
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%
5 out of 10
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at CBRE Group last year, the company has picked up a point, with a boost in earnings bringing valuations down. The stock has also posted modest gains of around 10% over the past year.
After the plunge in the residential housing market five years ago, many investors believed that the commercial real estate market would be the next shoe to drop. Yet despite seeing major drops during the market meltdown in early 2009, both CBRE Group and rival Jones Lang Lasalle (NYS: JLL) have rebounded sharply as those fears largely failed to materialize.
CBRE Group provides a wide range of property services, both by managing properties owned by outside investors and by directly owning properties for its own account. With Nuance Communications (NAS: NUAN) , Royal Caribbean (NYS: RCL) , and Walgreen (NYS: WAG) among its impressive list of direct tenants, CBRE has plenty of direct exposure to the commercial lease market.
On the earnings front, CBRE has done an impressive job. Even as Jones Lang Lasalle posted lackluster results during the second quarter, CBRE managed to beat estimates easily, even as the global real estate market started to lose a little momentum overall. Later this week, CBRE is set to release third-quarter earnings, which analysts believe will include a healthy boost of 37.5% on earnings per share and a nearly 10% growth rate for revenue.
For CBRE Group to keep improving, it needs to keep revenue growing by continuing to stay on top of its real estate holdings and by building more management relationships with potential investors. Given the scope of the global real estate market, CBRE has plenty of room to rise toward perfection in the years ahead.
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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The article Has CBRE Group Become the Perfect Stock? originally appeared on Fool.com.
Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of Jones Lang LaSalle, Nuance Communications, and Royal Caribbean. Motley Fool newsletter services recommend Jones Lang LaSalle, Nuance Communications, and Royal Caribbean. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.