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 National Beverage 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 National Beverage.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-year annual revenue growth > 15%

3.5%

Fail

 

1-year revenue growth > 12%

7.1%

Fail

Margins

Gross margin > 35%

32.2%

Fail

 

Net margin > 15%

7%

Fail

Balance sheet

Debt to equity < 50%

102.1%

Fail

 

Current ratio > 1.3

2.29

Pass

Opportunities

Return on equity > 15%

54.8%

Pass

Valuation

Normalized P/E < 20

15.04

Pass

Dividends

Current yield > 2%

0%*

Fail

 

5-year dividend growth > 10%

0%*

Fail

       
 

Total score

 

3 out of 10

Source: S&P Capital IQ. Total score = number of passes. * Excludes special dividend.

Since we looked at National Beverage last year, the company has dropped another two points, adding to its one-point loss from 2011 to 2012. Falling gross margins and a big jump in debt are to blame for the score decline, but the stock has managed to post a total return of between 5% and 10% over the past year, including dividends.

National Beverage is the company behind Everfresh juice and Shasta soft drinks, among other beverage brands. Although some of its brands have been around for decades, the company's move into more up-to-date areas like LaCroix water and Rip It energy drinks show National Beverage's flexibility in adapting to changing consumer trends.

National Beverage's small size has helped it maintain growth, even in the face of weakness in the broader industry. Both drink giant Coca-Cola and fringe player Dr Pepper Snapple have had slower revenue growth over the past year, as pressures from lower unit volumes, and rising concerns about obesity, have hurt the industry's bigger players. But, with a diversified set of drink offerings and a tiny footprint, National Beverage has been able to navigate the industry more effectively.

The big news for National Beverage was its decision to pay a special dividend of $2.55 per share in November, which, at the time, represented more than 17% of the share price. But, much of the benefit went to CEO Nick Caporella, who directly or indirectly owns 74% of the company's shares, and therefore reaped roughly $87 million from the special dividend. Interestingly, the share price rose by roughly the amount of the dividend right after its announcement, and the stock traded at about the pre-announcement level after making its payout.

For National Beverage to improve, it needs to pay down the $60 million it borrowed in the past quarter, which presumably went toward financing the special dividend. From there, the big question will be whether it can keep outperforming its larger rivals and produce higher profits. In all likelihood, National Beverage will stay small, and not advance much further toward 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.

Coca-Cola's wide moat has helped provide its shareholders with superior gains in the past, but the company faces some new threats to its continued market dominance. The Motley Fool recently compiled a premium research report containing everything you need to know about Coca-Cola. If you own or are considering owning shares in the company, you'll want to click here now and get started!

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

The article Has National Beverage Become the Perfect Stock? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.

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