TopBuild Corp (NYSE:BLD) Excels as a Quality Investment with High ROIC and Strong Cash Flow

The Caviar Cruise stock screening strategy is based on quality investing, a method that looks for companies with solid fundamentals, lasting competitive edges, and steady long-term growth. Unlike value investing, which targets undervalued stocks, quality investing focuses on businesses with high profitability, smart capital use, and stable operations, even if their valuations are higher. The Caviar Cruise screen uses strict filters to find these companies, including strong revenue and EBIT growth, high returns on invested capital (ROIC), reasonable debt levels, and reliable cash flow conversion.

TopBuild Corp (NYSE:BLD) stands out as a strong candidate under this approach. The company, a top provider of insulation and building product installation in the U.S. and Canada, shows many qualities that match the Caviar Cruise criteria.

Key Strengths Identified by the Caviar Cruise Screen

1. High Profitability and ROIC

• ROICexgc (Return on Invested Capital, Excluding Cash & Goodwill): 71.99%
  This number is well above the screen’s 15% minimum, showing TopBuild’s ability to earn strong profits from its investments. A high ROIC is a sign of a quality company, as it points to smart capital use and lasting competitive edges, which help long-term growth.
• Operating Margin (16.84%) and Profit Margin (11.40%)
  Both margins are in the top 10% of the household durables industry, highlighting the company’s pricing strength and cost control. These margins have also grown over the past five years, indicating better operational efficiency.

2. Reliable Cash Flow Conversion and Solid Balance Sheet

• Profit Quality (5Y Avg.): 110.48%
  TopBuild turns net income into free cash flow at a rate over 100%, beating the screen’s 75% target. This means earnings are supported by real cash flow, which is key for funding growth, dividends, or share buybacks.
• Debt/FCF Ratio: 2.37
  With debt that can be repaid in less than 2.5 years using current free cash flow, TopBuild’s balance sheet is strong. The Caviar Cruise screen prefers companies with Debt/FCF below 5, as lower debt reduces risk and improves stability during tough times.

3. Growth Path and Industry Role

• EBIT Growth (5Y CAGR): 25.86%
  TopBuild’s EBIT growth is much higher than the screen’s 5% minimum, showing scalable operations and effective management. While recent revenue growth has slowed, the company’s focus on higher-margin areas (like specialty distribution) supports profitability.
• Analyst Expectations: Steady Future Growth
  Though short-term revenue growth estimates are modest (~1.4%), TopBuild’s strong position in construction supply chains and its role in energy-efficient building trends offer long-term growth potential.

Fundamental Analysis Overview

ChartMill’s fundamental report gives TopBuild an overall score of 6/10, with high marks in profitability (9/10) and financial health (8/10). Key points:

• Profitability: Ranks better than 90% of peers in ROE (27.73%) and operating margin.
• Valuation: P/E ratios (21.36 trailing, 20.07 forward) are slightly higher than industry averages but are supported by strong margins and ROIC.
• Liquidity: Current and quick ratios (2.83 and 2.29, respectively) show good short-term financial health.

Why TopBuild Matches the Quality Investing Approach

The Caviar Cruise strategy looks for businesses that can grow value over many years, not just short cycles. TopBuild’s high ROIC, cash flow strength, and leading role in a fragmented industry fit this idea. Its manageable debt and stable margins also reduce risks, making it a candidate for further review by investors focused on quality.

For readers who want to see other companies that pass the Caviar Cruise screen, click here to view the full screener results.

Disclaimer: This article is not investment advice. Always do your own research or consult a financial advisor before making investment decisions.