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 Corp. (NASDAQ:FIZZ) 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 Corp. (NASDAQ:FIZZ) 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 The Coca-Cola Company (NYSE:KO) 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 Corp. (NASDAQ:FIZZ) has been able to navigate the industry more effectively.
