Has Pitney Bowes 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, then decide if Pitney Bowes (NYSE: PBI  ) 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 Pitney Bowes.

Factor	What We Want to See	Actual	Pass or Fail?
Growth	5-Year Annual Revenue Growth > 15%	(0.9%)	Fail
�	1-Year Revenue Growth > 12%	(1.4%)	Fail
Margins	Gross Margin > 35%	50.4%	Pass
�	Net Margin > 15%	7.9%	Fail
Balance Sheet	Debt to Equity < 50%	NM	NM
�	Current Ratio > 1.3	1.25	Fail
Opportunities	Return on Equity > 15%	NM	NM
Valuation	Normalized P/E < 20	9.02	Pass
Dividends	Current Yield > 2%	7.7%	Pass
�	5-Year Dividend Growth > 10%	3%	Fail
�	�	�	�
�	Total Score	�	3 out of 8

Source: S&P Capital IQ. NM = not meaningful; Pitney Bowes had negative or negligible shareholder equity during the periods in question. Total score = number of passes.

Since we looked at Pitney Bowes last year, the company has maintained its three-point score. Valuations at the mailing-equipment giant have dropped and its dividend yield has risen, but sales continue to fall gently.

It wasn't so long ago that Pitney Bowes dominated the mailing-services industry. With machines to calculate postage, the company had a presence in a huge number of corporate mailrooms around the country.

But the arrival of the Internet has changed the entire industry, putting the Postal Service itself in jeopardy and bringing new competition. In particular, Stamps.com (Nasdaq: STMP  ) and Newell Rubbermaid's Endicia.com have joined Pitney Bowes as the only licensed PC postage vendors, but Stamps.com was first to capitalize on the niche -- and it now has about 80% customer share, leaving Pitney Bowes in the dust.

In 2010, the company announced deals with United Parcel Service (NYSE: UPS  ) and FedEx (NYSE: FDX  ) to try to regain lost revenue from falling Postal Service volumes. But while both UPS and FedEx have continued to see solid revenue gains, the move doesn't appear to have reversed a falling top line for Pitney Bowes.

Increasingly, the company's high debt levels have raised fears about the sustainability of Pitney Bowes' dividend. Without a return to positive growth, it's hard to see that payout lasting forever. To regain its perfection, Pitney Bowes needs to find a way to get out of its obsolescent business and build a new growth engine. Otherwise, it's hard to be bullish about the company's prospects going forward.

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.

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Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."