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 and then decide whether Telefonica S.A. (NYSE:TEF) 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 Telefonica.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Growth||5-year annual revenue growth > 15%||2.4%||Fail|
|1-year revenue growth > 12%||6.1%||Fail|
|Margins||Gross margin > 35%||57.9%||Pass|
|Net margin > 15%||9.6%||Fail|
|Balance sheet||Debt to equity < 50%||264.7%||Fail|
|Current ratio > 1.3||0.78||Fail|
|Opportunities||Return on equity > 15%||27.8%||Pass|
|Valuation||Normalized P/E < 20||16.00||Pass|
|Dividends||Current yield > 2%||0%||Fail|
|5-year dividend growth > 10%||NM||NM|
|Total score||3 out of 9|
Since we looked at Telefonica last year, the company has lost another point after falling by 2 points from 2011 to 2012. The stock has also suffered, falling 20% over the past year amid high levels of uncertainty in Spain.