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 Marvell Technology Group Ltd. (NASDAQ:MRVL) 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 Marvell Technology Group Ltd. (NASDAQ:MRVL).
|Factor||What We Want to See||Actual||Pass or Fail?|
|Growth||5-year annual revenue growth > 15%||1.8%||Fail|
|1-year revenue growth > 12%||(6.6%)||Fail|
|Margins||Gross margin > 35%||53%||Pass|
|Net margin > 15%||9.7%||Fail|
|Balance sheet||Debt to equity < 50%||0%||Pass|
|Current ratio > 1.3||4.25||Pass|
|Opportunities||Return on equity > 15%||6.5%||Fail|
|Valuation||Normalized P/E < 20||30.91||Fail|
|Dividends||Current yield > 2%||2.2%||Pass|
|5-year dividend growth > 10%||NM||NM|
|Total score||4 out of 9|
Since we looked at Marvell Technology last year, the company hasn’t been able to regain any ground from the four-point drop it suffered from 2011 to 2012. The stock has also performed badly, falling 30% over the past year.
One big reason for Marvell Technology Group Ltd. (NASDAQ:MRVL)’s decline has been the general weakness of the PC industry. Marvell was somewhat slow to adapt to the growing mobile market, but unlike some of its larger rivals that remain mired in the dying PC world, Marvell has actually taken steps to make the transition toward more forward-looking businesses, including mobile chips and solid-state drives.
One area where Marvell is aiming is in emerging markets. Its new quad-core processor and integrated communications chip is well-suited for the low-cost smartphones and tablets that dominate the market there.
Marvell Technology Group Ltd. (NASDAQ:MRVL) faces plenty of competition. QUALCOMM, Inc. (NASDAQ:QCOM) won business away from Marvell by taking over its place as primary chip provider for Research In Motion Ltd (NASDAQ:BBRY), and NVIDIA Corporation (NASDAQ:NVDA) is fighting hard to push its Tegra line and other chips into mobile devices worldwide as well. Yet with hundreds of millions of smartphones in the $100 range expected to sell in the next year, Marvell just needs to get a reasonably sized slice of a big pie.
To improve, Marvell Technology Group Ltd. (NASDAQ:MRVL) needs to get past its recent patent setback, in which Carnegie Mellon University successfully sued the company to win a $1.17 billion judgment, and get its revenue moving back in the right direction. Instituting a new dividend last summer was good for shareholders, but to achieve perfection, Marvell Technology Group Ltd. (NASDAQ:MRVL) needs to produce the growth necessarily to keep rewarding investors for the long haul.
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.
The article Has Marvell Technology Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.
Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends NVIDIA. The Motley Fool owns shares of Qualcomm.
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