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 and then decide whether Garmin Ltd. (NASDAQ:GRMN) 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:
With those factors in mind, let's take a closer look at Garmin.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Growth||5-year annual revenue growth > 15%||2.1%||Fail|
|1-year revenue growth > 12%||6.3%||Fail|
|Margins||Gross margin > 35%||51.7%||Pass|
|Net margin > 15%||20.3%||Pass|
|Balance sheet||Debt to equity < 50%||0%||Pass|
|Current ratio > 1.3||2.80||Pass|
|Opportunities||Return on equity > 15%||17.9%||Pass|
|Valuation||Normalized P/E < 20||19.68||Pass|
|Dividends||Current yield > 2%||4.6%||Pass|
|5-year dividend growth > 10%||19.1%||Pass|
|Total score||8 out of 10|
Since we looked at Garmin last year, the company has gotten back one of the points it lost from 2011 to 2012. Unfortunately, the drop in valuation that earned the point came at the expense of shareholders, with the stock dropping about 5% over the past year.