Is World Fuel Services the Perfect Stock?
Feb 28th 2012 9:24AM
Updated Feb 28th 2012 1:54PM
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 World Fuel Services (NYS: INT) 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 World Fuel Services.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||26.3%||Pass|
|1-Year Revenue Growth > 12%||81.0%||Pass|
|Margins||Gross Margin > 35%||1.8%||Fail|
|Net Margin > 15%||0.6%||Fail|
|Balance Sheet||Debt to Equity < 50%||21.3%||Pass|
|Current Ratio > 1.3||1.54||Pass|
|Opportunities||Return on Equity > 15%||16.1%||Pass|
|Valuation||Normalized P/E < 20||20.77||Fail|
|Dividends||Current Yield > 2%||0.3%||Fail|
|5-Year Dividend Growth > 10%||14.9%||Pass|
|Total Score||6 out of 10|
Source: S&P Capital IQ. Total score = number of passes.
With a score of six, World Fuel Services does a pretty good job of making the grade. The company has seen explosive growth, and despite razor-thin margins, it's been able to put together some impressive profit numbers.
World Fuel Services is one of those companies that you rely on without ever knowing it. The company sells fuel to commercial airlines and private aircraft as well as the military. It also provides marine fuel for tanker fleets and cruise ships, in addition to running some regular retail gas stations on land.
In my opinion, shipping represents the company's most interesting segment right now. The shipping industry has a glut of vessels available, especially among oil tankers. Frontline (NYS: FRO) announced that it would need to take extreme measures in order to avoid running out of cash. Yet the pain among tanker companies actually puts World Fuel Services in an enviable position, as it gets to pick and choose from the many competing players in the industry.
Late last year, World Fuel Services won a fuel supply contract with the U.S. Air Force. Yet with big oil players ExxonMobil (NYS: XOM) , BP (NYS: BP) and refining giant Valero (NYS: VLO) competing against it, World Fuel Services has to make the most of its advantages. One thing the company has going for it is that many ship owners prefer not to work directly with Exxon, BP, and other Big Oil giants, and World Fuel Services is able to act as a go-between.
Last week, the company said that fourth-quarter revenue fell short of expectations, even though profit beat estimates slightly. For World Fuel Services to keep getting closer to perfection, it really needs to sustain revenue growth and find ways to keep increasing its dividend. If it can, then it could reward shareholders in the years to come.
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.
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At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. Motley Fool newsletter services have recommended buying shares of ExxonMobil. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.
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