Is Inhibitex 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 Inhibitex (Nasdaq: INHX  ) 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 Inhibitex.

Factor	What We Want to See	Actual	Pass or Fail?
Growth	5-Year Annual Revenue Growth > 15%	20.3%	Pass
?	1-Year Revenue Growth > 12%	14.1%	Pass
Margins	Gross Margin > 35%	100%	Pass
?	Net Margin > 15%	NM	NM
Balance Sheet	Debt to Equity < 50%	0.8%	Pass
?	Current Ratio > 1.3	9.42	Pass
Opportunities	Return on Equity > 15%	(72%)	Fail
Valuation	Normalized P/E < 20	NM	NM
Dividends	Current Yield > 2%	0%	Fail
?	5-Year Dividend Growth > 10%	0%	Fail
?	?	?	?
?	Total Score	?	5 out of 8

Source: S&P Capital IQ. NM = not meaningful due to negative earnings that substantially exceeded total revenue. Total score = number of passes.

With a score of 5, Inhibitex actually does pretty well for a small company. The young biotech has shot up recently on promising news for its main drug.

As with most small biotechs, Inhibitex's success or failure largely rests on a single drug. For Inhibitex, that drug is INX-189, a treatment for hepatitis C. That's a crowd! ed space , with Gilead Sciences (Nasdaq: GILD  ) and Idenix Pharmaceuticals (Nasdaq: IDIX  ) having drugs in development. Moreover, Pharmasset (Nasdaq: VRUS  ) has partnered with giants Bristol-Myers Squibb (NYSE: BMY  ) and Johnson & Johnson (NYSE: JNJ  ) .

But unlike many biotechs, Inhibitex has gotten some unquestionably positive news lately. The company announced that INX-189 turned in unexpectedly good trial results. Although Vertex Pharmaceuticals (Nasdaq: VRTX  ) arguably has the lead in the space, Inhibitex's all-oral treatment would be a big advantage over Vertex's injectable Incivek.

The key to remember, though, is that INX-189 is only in phase 2 trials right now. It still has a long way to go before FDA approval even comes onto the table. Investors who are already treating it like a perfect stock are getting ahead of themselves, but there's no denying that Inhibitex has a great deal of promise.

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 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."