For investors aiming to assemble a collection of durable, high-achieving companies for the future, the quality investing method provides a structured system. This system targets finding businesses with lasting competitive strengths, high profitability, sound financial condition, and steady expansion, traits that let them increase value over many years. The "Caviar Cruise" stock filter, based on the ideas of quality investing, uses a set of numerical checks to find these companies. It reviews past results using sales and profit expansion, effectiveness through high returns on invested capital, financial soundness by looking at controlled debt, and profit reliability by checking cash flow generation.
One firm that now meets this strict filter is AFYA LTD-CLASS A (NASDAQ:AFYA), a top medical education group in Brazil. Looking at how Afya matches the Caviar Cruise standards, we can see its possible interest for investors focused on quality.
Matching the Main Quality Checks
The Caviar Cruise filter's standard form establishes strict levels across multiple important financial measures, each intended to find companies with better business structures. Afya's financial details show a good match.
-
High Return on Invested Capital (ROIC): A central idea of quality investing, ROIC calculates how well a company produces profits from its capital. The filter needs a ROIC (leaving out cash, goodwill, and intangibles) over 15%. Afya greatly surpasses this with a number of 115.6%. This shows a very capital-efficient and expandable business structure, where additional investments in its educational systems and campuses produce very high returns. For a quality investor, this is a main signal of a broad economic advantage and high management skill.
-
High Profitability Expansion: The filter requires that a company's Earnings Before Interest and Taxes (EBIT) has increased by at least 5% each year over five years. Afya's EBIT has grown at a high 37.6% over this time. This fast growth rate in core operating profit indicates the company is effectively widening its market presence and improving its operational scale, a needed feature for a long-term value builder.
-
Sound Financial Condition (Debt/FCF): Financial durability is essential for quality holdings. The filter uses the Debt-to-Free Cash Flow (FCF) measure to confirm debts are easily supported, setting a level under 5. Afya's measure of 2.43 is comfortably inside this limit, meaning it could pay off all its debt in under two and a half years using its present cash flow. This gives a large safety margin against economic slowdowns and allows the company options to fund growth or give capital to shareholders.
-
High Profit Reliability: This measure checks how effectively a company turns its accounting profits into real, usable cash, a sign of lasting earnings. The filter looks for a five-year average Free Cash Flow to Net Income ratio over 75%. Afya's number of 151.3% is very high, showing it creates much more cash flow than its stated net income. This very high cash generation supplies the means for reinvestment, debt paydown, or shareholder benefits without needing outside funding.
Basic Analysis Summary
An examination of Afya's wider fundamental analysis report supports the image shown by the filter. The company receives a total fundamental score of 6 out of 10, with high scores in Profitability (8/10) and Valuation (8/10).
- Profitability Advantages: Afya has top-tier margins, with an Operating Margin of 32.84% (higher than 97% of similar companies) and a strong Return on Equity of 15.37%. Its ROIC of 12.76% also beats most companies in the Diversified Consumer Services field.
- Good Valuation: Even with its high growth and profitability, Afya seems fairly valued. It trades at a P/E ratio of 8.37 and a Forward P/E of 7.94, which are low next to both the field average and the wider S&P 500. This mix of quality and price is called a "rare combination" in the report.
- Points to Observe: The report mentions some small points about financial condition (score of 4/10), mainly connected to short-term liquidity measures like its Current and Quick Ratios. While its solvency and debt setup are seen as okay, this is a point for investors to check.
Investment Case for Quality Investors
For an investor using a quality-focused, long-term strategy, Afya makes a strong argument. It works in the necessary and stable field of education, specifically meeting a lasting shortage of healthcare workers in Brazil, a long-running, built-in trend. Its financial numbers suggest it has the competitive edges, pricing ability, and operational skill that quality filters aim to find. The company’s capacity to grow sales and profits at a fast pace while creating very high cash returns on capital is the sign of a possible long-term value builder. Also, its present price may not completely account for this quality picture, possibly giving a good opportunity.
Finding Other Quality Options
The Caviar Cruise filter is an effective instrument for finding companies with good basic traits. Afya is one instance that meets its checks. Investors wanting to find other companies that satisfy these strict quality standards can use the Caviar Cruise filter themselves.
Disclaimer: This article is for information only and is not financial guidance, an endorsement, or an offer to buy or sell any security. Investing holds risk, including the possible loss of initial funds. You should do your own complete research and think about talking with a qualified financial consultant before making any investment choices.
