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 Comcast (NAS: CMCSA) 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 Comcast.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 17% Pass
  1-Year Revenue Growth > 12% 43.4% Pass
Margins Gross Margin > 35% 33.1% Fail
  Net Margin > 15% 7.6% Fail
Balance Sheet Debt to Equity < 50% 59.1% Fail
  Current Ratio > 1.3 0.60 Fail
Opportunities Return on Equity > 15% 8.8% Fail
Valuation Normalized P/E < 20 14.91 Pass
Dividends Current Yield > 2% 2.1% Pass
  5-Year Dividend Growth > 10% 20.9%* Pass
       
  Total Score   5 out of 10

Source: S&P Capital IQ. Total score = number of passes. *4-year growth rate.

Since we looked at Comcast last year, the company has picked up a point. Even with a better than 20% rise in the stock price, Comcast's earnings and dividend yield have both gone up, boding well for investors despite a big drop in gross margins.

Comcast has experienced the same trend that many in the cable industry have as consumers migrate from traditional cable TV to the Internet. In its most recent quarter, video customer counts fell by 37,000, but subscribers to Comcast's high-speed Internet service rose by a whopping 439,000. Those gains continue to come despite the company having added usage caps for broadband customers, although a recent move relaxed those caps somewhat.

Still, having acquired a majority interest in NBC Universal from General Electric (NYS: GE) , Comcast now has a huge stable of network content behind it. That has put it in a better position to go up against Netflix (NAS: NFLX) by having added its own streaming-content service for its cable subscribers.

In an interesting move, Comcast plans to share Wi-Fi hotspots with Time Warner Cable, Cablevision (NYS: CVC) , and Cox Communications. The move will help the cable industry compete better with telecom companies and their mobile broadband offerings, although the 50,000 targeted access points will only go a short way toward matching what competitors offer.

For Comcast to keep improving, it needs to maximize the value of its content while also making the most of its deal with Verizon (NYS: VZ) to co-market its services alongside Verizon's wireless phone offerings. If it can do so, the future should look brighter for Comcast.

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.

Comcast isn't the perfect stock, but we've got some ideas you may like better. Let me invite you to learn about three smart long-term stock plays in the Fool's latest special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

Click here to add Comcast to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Netflix. Motley Fool newsletter services have recommended buying shares of Netflix. 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.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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