Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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.

World Wrestling Entertainment hasn’t given investors the show they’ve hoped to see for quite a while. The company hasn’t been completely without success, as its annual WrestleMania event grossed a record $8.9 million last year. Yet growth has eluded the company, and its recent revenue contraction reflects how its attempts to jump-start its business haven’t produced results.

The company hasn’t given up on its growth efforts. It started the television series WWE Main Event last summer on the ION network, complementing its deals with Comcast Corporation (NASDAQ:CMCSA) to broadcast Raw and Smackdown. It also launched a show on the CW network oriented toward kids, Saturday Morning Slam, in an agreement with CBS Corporation (NYSE:CBS) and Time Warner Inc. (NYSE:TWX). With Comcast, CBS, and Time Warner all fighting to find valuable content to show on their growing stable of networks, their willingness to make deals with WWE is a sign of their confidence in the entertainment company.

Perhaps the most interesting initiative World Wrestling Entertainment has in the pipeline is its proposed WWE Network. The dedicated cable network would show 24-hour programming from the company’s huge library of content, which includes shows from as far back as the 1990s.

For WWE to improve, it needs to show that it can fend off growing competition from the Ultimate Fighting Championship series, which has grown immensely in popularity. Otherwise, WWE may never get any closer to perfection.

Keep searching
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 World Wrestling Entertainment Become the Perfect Stock? originally appeared on and is written by Dan Caplinger.

Fool contributor Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don’t 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.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.