Applied Materials Inc (NASDAQ:AMAT) appears as a notable option for investors focused on quality who use the Caviar Cruise screening method. This process finds firms with excellent business foundations, such as solid and steady increases in revenue and earnings, high returns on capital put to work, acceptable debt, and the capacity to turn accounting earnings into actual cash. The method supports a long-term, buy-and-hold perspective, looking for companies that are not just earning money but are also financially sound and run with good oversight.
Financial Performance and Growth
The Caviar Cruise screen favors companies with a record of expansion, asking for at least 5% yearly growth in both revenue and EBIT (Earnings Before Interest and Taxes) across five years. Applied Materials easily meets these minimum standards, indicating a solid operational increase.
- Revenue Growth (5Y CAGR): 7.78%
- EBIT Growth (5Y CAGR): 14.18%
A key idea in the quality investing view is rising profitability, where earnings increase faster than sales. Applied Materials' EBIT growth rate, almost twice its revenue growth, is a clear sign of this pattern. It implies the company gains from effective operations, benefits from size, or has notable control over pricing, all characteristics of a high-caliber firm with a market advantage.
Profitability and Capital Efficiency
Central to the Caviar Cruise process is the search for capital-effective businesses, judged by Return on Invested Capital (ROIC). The screen requires a ROIC excluding cash, goodwill, and intangibles above 15%. Applied Materials provides a standout number here.
- ROIC (Ex Cash+GW): 43.72%
This very high return shows that Applied Materials is highly capable in using its capital to produce earnings. For a quality investor, a high and steady ROIC is frequently the most crucial measure, as it points to a lasting competitive edge and excellent management performance. The company is not only getting larger; it is getting larger in a profitable and effective way.
Financial Health and Cash Flow
Quality investing includes a complete evaluation of a company's financial strength. The Caviar Cruise method uses the Debt-to-Free Cash Flow ratio to confirm a company can easily handle its debts, with a goal of under 5 years to clear all debt using present cash flow.
- Debt / Free Cash Flow: 1.08
Applied Materials' ratio of slightly more than one year is ideal, showing a very secure balance sheet with little debt compared to its cash production. This financial strength offers a good safety buffer and operating freedom. Additionally, the screen searches for high "Profit Quality," meaning the part of net income changed into free cash flow, with a 75% 5-year average as the minimum.
- Profit Quality (5y average): 89.65%
Applied Materials' number, much higher than the goal, proves that its stated earnings are supported by significant, real cash. This lowers the danger connected with accounting profits and confirms the durability of its financial results.
Fundamental Analysis Overview
An examination of the detailed fundamental analysis report for Applied Materials supports the results from the Caviar Cruise screen. The company gets a good overall fundamental rating of 7 out of 10. Its profitability is a key strength, scoring a 9, led by first-class returns on assets, equity, and invested capital versus similar companies. The health score of 7 indicates a firm balance sheet, helped by a low chance of financial failure and the very good Debt-to-FCF ratio mentioned before. While its price is seen as reasonable instead of cheap, and future expansion is anticipated to be good though slowing from previous levels, the mix of top-level profitability and financial health creates a solid base for a long-term quality holding.
Conclusion
Applied Materials makes a good argument for review in a quality investment collection. It successfully satisfies the strict, measurable checks of the Caviar Cruise screen, showing strong growth, outstanding profitability, solid cash flow production, and a careful financial setup. These traits match the quality investing aim of holding leading, well-run companies for many years.
For investors curious about finding other firms that meet these strict quality measures, you can review the full Caviar Cruise screen here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
