TopBuild Corp. (NYSE:BLD) Embodies Caviar Cruise Quality Investing Principles

The Caviar Cruise stock screening strategy is based on quality investing principles, focusing on finding companies with solid past results, strong profitability, and lasting financial soundness. This method highlights long-term ownership of businesses that show steady revenue and earnings expansion, high returns on invested capital, effective cash conversion, and acceptable debt amounts. Instead of looking for deep value chances, quality investors favor lasting competitive edges and high operational standards, frequently paying higher prices for better business traits.

Financial Performance and Profitability

TopBuild Corp. (NYSE:BLD) shows a number of traits that fit the Caviar Cruise quality investing model. The company has reached a notable EBIT growth rate of 25.86% CAGR over the last five years, greatly surpassing the strategy's 5% minimum level. This large operational profit expansion points to solid execution and increasing margins in the insulation and building products distribution industry. The company's return on invested capital excluding cash, goodwill, and intangibles is a remarkable 71.99%, far exceeding the 15% need and indicating very efficient capital use.

The company's profitability measures further support its quality standing:

• Operating margin of 16.84%, doing better than 91.80% of industry peers
• Profit margin of 11.40%, above 86.89% of competitors
• Steady margin improvement across gross, operating, and profit margins in recent years

Financial Health and Cash Flow Quality

TopBuild shows solid financial health with a debt-to-free cash flow ratio of 2.37, much lower than the strategy's highest level of 5. This shows the company could pay off all debt in under two and a half years using current cash flow amounts. The company's profit quality, measured as free cash flow to net income conversion, averages 110.48% over five years, above the 75% requirement and showing very good cash creation compared to accounting profits.

The company's balance sheet strength is further shown by:

• Current ratio of 2.83, indicating good short-term liquidity
• Quick ratio of 2.29, performing better than 91.80% of industry peers
• Altman-Z score of 5.15, suggesting low bankruptcy risk

Fundamental Analysis Overview

According to the full fundamental analysis report available here, TopBuild gets an overall rating of 6 out of 10, with especially high scores in profitability (9/10) and financial health (8/10). The report notes the company's very good returns on assets (11.61%) and equity (27.73%), both ranking in the top groups within the household durables industry. While valuation is still somewhat high with a P/E ratio of 20.12, this is partly reasonable given the company's outstanding profitability measures and growth past results.

Growth Path and Future Outlook

The company has shown solid historical growth with EPS increasing at 30.78% each year over recent years, though analysts forecast more average future expansion rates. Revenue growth predictions have slowed, with estimates showing about 0.52% yearly growth going forward. This change from high growth to more maintainable levels is common as companies age, though investors should watch if TopBuild can keep its higher valuation if expansion rates keep reducing.

Industry Position and Competitive Edges

As a top installer and distributor of insulation products in residential and commercial construction markets, TopBuild gains from several competitive benefits. The company's nationwide presence in the U.S. and Canadian markets offers scale benefits, while its two-part method joining installation services with specialty distribution creates cross-selling chances. The growing focus on energy efficiency in building codes and consumer likes provides support for the insulation industry, helping long-term demand basics.

For investors wanting to review other companies that meet the Caviar Cruise quality investing standards, more screening results are available through this link.

Disclaimer: This analysis is for informational purposes only and should not be considered as investment advice. Investors should conduct their own research and consult with financial professionals before making investment decisions.