Allegion PLC (NYSE:ALLE) Identified as a High-Quality Stock by Investment Screen

Allegion PLC (NYSE:ALLE) has been identified by an investment screening method that finds high-quality companies. This method, called quality investing, looks for businesses with lasting competitive strengths, good and steady profitability, and sound finances, making them appropriate for long-term, buy-and-hold portfolios. The particular screen used, based on the ideas of quality investing, looks for companies with good revenue and profit growth, high returns on capital, solid cash flow creation, and a reasonable amount of debt. Allegion’s presence in these results implies it has several characteristics that fit this careful investment approach.

Meeting the Quality Threshold

The screening standards are made to find companies that are both profitable and efficient, with strong finances. Allegion satisfies these strict needs in a number of important areas. The company’s past performance displays a focus on growth, and its profitability measurements show a solid market standing and good operations.

• Revenue & EBIT Growth: The screen asks for at least a 5% compound annual growth rate (CAGR) for revenue and EBIT (Earnings Before Interest and Taxes) over five years. Allegion does better than this, with a revenue CAGR of 8.3% and an EBIT CAGR of 6.69%. Also, a main idea of the strategy is increasing profitability, which is shown when EBIT growth is higher than revenue growth. This implies the company is gaining from larger operations or has the ability to set prices, both signs of a high-quality business.
• Exceptional Return on Capital: A very important measurement for quality investors is the Return on Invested Capital (ROIC), which checks how well a company produces profits from its capital. The screen sets a high standard at 15%. Allegion greatly exceeds this with an ROIC (leaving out cash, goodwill, and intangibles) of 51.92%, putting it in the best group of its industry and pointing to very efficient use of shareholder capital.
• Strong Financial Health: To check for long-term stability, the screen looks at debt compared to free cash flow, with a ratio under 5 seen as good. Allegion’s ratio of 3.03 shows it could pay off all its debt in a little more than three years using its current cash flow, indicating a solid and controlled balance sheet.
• High-Quality Earnings: The strategy prefers companies where accounting profits are supported by real cash. This is measured by the Profit Quality ratio, which matches free cash flow to net income. An average ratio above 75% over five years is needed. Allegion’s ratio of 102.45% is very good, showing that its reported earnings are completely, and even more than completely, turned into cash, giving financial room for dividends, share repurchases, or new investment.

Fundamental Analysis Overview

A detailed fundamental analysis of Allegion supports the results from the quality screen. The company gets a good overall score, led by very high ratings in profitability and financial health. Its profit margins are some of the best in the building products industry, and it shows a regular record of building value for shareholders. Although the price may be high next to some industry competitors, this is common for high-quality companies with reliable earnings and growth potential. The analysis also mentions positive predicted growth in both revenue and earnings per share in the next few years.

A Business Built on Security

Beyond the number-based filters, Allegion’s business model matches the non-number-based qualities wanted by quality investors. As a top worldwide supplier of security products and solutions for homes, businesses, and institutions, its activities are supported by lasting demand factors. Its collection of well-known brands, like Schlage, Von Duprin, and LCN, gives it a competitive edge and pricing ability. The business is fairly simple to grasp and has a worldwide presence, spreading out its revenue sources. These traits point to a strong company able to handle economic ups and downs.

For investors wanting to use this method to find other possible quality investments, the Caviar Cruise stock screen is ready for more review. You can view and customize the screen here.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy, sell, or hold any security, or an endorsement of any investment strategy. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.