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 AutoNavi 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 AutoNavi.
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%
6 out of 10
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at AutoNavi last year, the company has dropped two points, with declining return on equity and a rising earnings multiple. The stock has managed to post a small gain of about 10% over the past year.
AutoNavi is best known for its map database in China. The company has built many strategic partnerships among Internet-based companies doing business within the emerging nation, listing Renren and SINA as representative customers for its map-based technology.
Recently, AutoNavi found itself peripherally involved in the war between smartphone giants Apple and Google . When Apple decided to stop providing Google mapping services and went with its own software, it received huge criticism for inaccuracies in its map database. But because Apple stuck with AutoNavi's software in China, Chinese users of iPhone 5 maps haven't had anything to complain about. That's a clear vote of confidence for the company going forward.
Yet AutoNavi is working hard to cement its place within the industry. It has a newly expanded agreement with DigitalGlobe that should give both companies a leg up in gaining global reach for their products, and as technology becomes more advanced, applications for both personal and business use should support AutoNavi further.
AutoNavi likely won't improve until it has built itself up enough to consider paying a dividend. Focusing on earnings growth, however, could help it reduce its multiple and get it moving in the right direction toward 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.
Despite Apple's obvious success, its recent iOS 6 mapping fiasco has led some to wonder whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.
Click here to add AutoNavi to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.
The article Has AutoNavi Become the Perfect Stock? originally appeared on Fool.com.
Fool contributor Dan Caplinger owns shares of Apple. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple, Google, and SINA. 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.