Has World Wrestling (WWE) Entertainment Become the Perfect Stock?

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 World Wrestling Entertainment, Inc. (NYSE:WWE) fits the bill.

World Wrestling Entertainment, Inc. (NYSE:WWE)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.
  • Moneymaking 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 World Wrestling Entertainment.

Factor What We Want to See Actual Pass or Fail?
Growth 5-year annual revenue growth > 15% 1.1% Fail
1-year revenue growth > 12% (2.4%) Fail
Margins Gross margin > 35% 39.6% Pass
Net margin > 15% 4.6% Fail
Balance sheet Debt to equity < 50% 0% Pass
Current ratio > 1.3 3.56 Pass
Opportunities Return on equity > 15% 7.2% Fail
Valuation Normalized P/E < 20 25.82 Fail
Dividends Current yield > 2% 5.6% Pass
5-year dividend growth > 10% (14.3%) Fail
Total score 4 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at World Wrestling Entertainment last year, the company has lost another point after dropping 2 points from 2011 to 2012. The stock has also continued to struggle, falling by about 5% over the past year.