For investors looking to assemble a group of lasting, high-achieving businesses, the quality investing method provides a useful structure. This strategy, which focuses on long-term ownership of outstanding companies, frequently uses filters to find firms with solid past results, good profitability, and reliable financial condition. One example is the "Caviar Cruise" filter, based on the ideas of quality investing. It selects for companies showing steady revenue and profit increase, high returns on invested capital, reasonable debt, and the skill to turn accounting profits into actual cash flow. The aim is not to locate temporary discounts, but to find enterprises constructed to build value over many years.
A recent use of this filter has brought forward ACI Worldwide Inc (NASDAQ:ACIW), a supplier of real-time electronic payment software and services. A detailed look shows how ACIW's financial picture matches several central parts of the quality investing approach.
Match with Quality Investing Standards
The Caviar Cruise filter uses particular, measurable criteria to search for quality. ACIW's basic financials display a good match with these strict needs:
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Profitability and Efficiency: A central part of quality investing is a company's skill to produce high returns on the capital it uses. ACIW performs well here, with a Return on Invested Capital (leaving out cash, goodwill, and intangibles) of 35.4%. This is much higher than the filter's 15% limit and shows notable efficiency in using its capital to create profits. For a quality investor, a high and maintainable ROIC is a main sign of a lasting competitive edge and able management.
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Financial Care: Quality companies are usually financed carefully. The filter checks this by comparing total debt to free cash flow, with a ratio under 5 seen as good. ACIW's ratio of 2.8 implies it could repay all its debt with under three years of current cash flow, indicating a firm balance sheet and limited financial danger. This steadiness is important for a buy-and-hold investor, as it lets the company manage economic declines and keep putting money into its operations.
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Cash Flow Trustworthiness: The "Profit Quality" measure checks how much of a company's reported net income becomes free cash flow. Over the last five years, ACIW has averaged a notable 119.9%, well above the filter's 75% standard. This means the company is creating more cash than its accounting profits indicate, a signal of trustworthy earnings. For an investor, this reliable cash creation supplies the means for dividends, share repurchases, debt paydown, and growth spending without needing outside money.
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Profitable Increase: The filter searches for companies where profit increase is faster than revenue increase, hinting at better operational scale or pricing ability. ACIW's five-year EBIT (earnings before interest and taxes) compound annual growth rate is 12.3%. While a direct five-year revenue CAGR comparison is not in the given data, the company's recent basic financials show an upward path, with the last year's revenue increasing over 10% and operating margins getting better. This focus on profitable main operations, instead of increase at any price, is a key quality investing separator.
Basic Condition and Valuation Setting
A wider look at ACIW's fundamental analysis report supports this quality story. The company gets a total score of 6 out of 10, with its top area being Profitability (score: 8/10). It displays sector-leading measures for Return on Equity and Operating Margin, which have both gotten better in recent years. Financial Condition is rated a firm 6/10, helped by a safe Altman-Z score and the strong debt-to-cash flow ratio mentioned before.
On Valuation (score: 7/10), the view is varied but sensible. With a forward P/E ratio of 15.6, ACIW trades below both the software sector average and the wider S&P 500. Considering its profitability and an estimated EPS growth rate around 20%, the present valuation does not seem high, which could interest quality investors looking for a reasonable price for a long-term asset. The Growth score of 6/10 is supported by strong past EPS growth and positive analyst views for what is ahead.
Is ACIW a Quality Builder?
For an investor using the Caviar Cruise or similar quality filters, ACI Worldwide offers a useful example. It works in the necessary and increasing area of electronic payments, a field with a long-term favorable trend. Financially, it shows the signs quality investors value: excellent returns on capital, clean cash conversion, careful borrowing, and a record of profitable increase. While valuation is always a factor and past results do not assure the future, the company's basic financial picture suggests it has the traits of a business made to last and build value.
The Caviar Cruise filter is made to find companies deserving of more study. You can review the present results of this quality-oriented filter and find other possible choices by clicking here.
Disclaimer: This article is for information only and is not financial advice, a suggestion to buy or sell any security, or a support of any investment plan. Investors should do their own complete research and think about their personal money situation and risk comfort before making any investment choices.