For investors aiming to assemble a portfolio of lasting, high-standard businesses, the principles of quality investing offer a useful framework. This method concentrates on finding companies with durable competitive strengths, reliable profitability, sound financial condition, and skilled management, the sort of operations an investor can confidently hold for decades. The "Caviar Cruise" stock screen puts this thinking into practice by selecting for measurable indicators that point to a superior enterprise, like persistent revenue and profit expansion, high returns on capital, and solid cash production. One company that presently meets this strict examination is Broadridge Financial Solutions, Inc. (NYSE:BR).
A Portrait of Consistent Expansion and Earnings
Fundamentally, the Caviar Cruise method looks for companies that are not only expanding, but doing so profitably and effectively. Broadridge, a top supplier of investor communications and technology solutions to the financial services industry, shows this plainly. The screen demands a minimum 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over the last five years. Broadridge surpasses both requirements.
- Revenue Growth (5Y CAGR): 5.35%
- EBIT Growth (5Y CAGR): 13.72%
Furthermore, the approach stresses that EBIT expansion should be greater than revenue growth, pointing to better operational effectiveness and possible pricing strength. Broadridge’s EBIT growth, over two times its revenue growth, is a clear sign the company is increasing its earnings as it gets larger.
Outstanding Returns on Capital and Cash Flow Health
For quality investors, how well a company employs its capital is critical. A high Return on Invested Capital (ROIC) points to a business with a lasting advantage that produces significant profits from its investments. The Caviar Cruise screen establishes a demanding target with an ROIC (excluding cash, goodwill, and intangibles) over 15%. Broadridge’s figure of 65.82% is remarkably high, implying the company’s main activities are very profitable and effective relative to the capital needed to operate them.
Financial durability is another key element. The screen employs the Debt-to-Free Cash Flow (FCF) ratio to evaluate how fast a company could repay its debt using its yearly cash production, with a ratio under 5 seen as good. Broadridge’s ratio of 2.68 suggests it could in theory clear its debt in less than three years with its present FCF, indicating a sturdy and controllable balance sheet. Also, the screen searches for high "profit quality", the capacity to turn accounting profits into actual cash. An average ratio of Free Cash Flow to Net Income above 75% over five years is sought. Broadridge performs well here too, with a five-year average Profit Quality of 109.36%, meaning it produces more cash flow than its stated net income, a marker of financial strength and superior earnings.
Fundamental Analysis Summary
An examination of Broadridge’s detailed fundamental report matches the screen’s conclusions, giving the stock a total rating of 5 out of 10. The report notes major positive points together with some points for watchfulness:
- Profitability is a key positive point (score: 8/10), with top-level returns on equity (35.11%) and assets (11.14%), and growing operating and profit margins.
- Dividend policy is steady (score: 7/10), with a 10-year record of yearly raises and a yield close to 2%.
- Growth is steady (score: 5/10), with good historical EPS and revenue expansion, although future revenue growth projections are more measured.
- Valuation seems fair (score: 5/10) compared to both its sector and the wider market, particularly when accounting for its high profitability.
- Financial condition shows points of concern (score: 3/10), mainly connected to liquidity measures like its current and quick ratios below 1, even though its solvency based on debt-to-FCF stays good.
Is Broadridge a Quality Investment Prospect?
Assessing Broadridge using the perspective of the Caviar Cruise approach shows a company that meets many of the important numerical criteria for a quality investment. Its business of supplying necessary, repeating services to the financial industry, such as proxy processing, regulatory communications, and transaction processing, displays traits quality investors like: durability, high switching costs, and a steady income source. The numerical proof of excellent capital returns, strong cash conversion, and profitable expansion backs the idea of a company with a competitive edge.
Still, the fundamental analysis report correctly notes liquidity measures that deserve investor consideration. This highlights a vital aspect of the quality investing method: a screen is a beginning for more thorough investigation, not a final instruction to buy. Investors need to evaluate if the company’s business model is simple to grasp, whether its management is skilled, and if its competitive standing is durable, elements that are harder to measure.
For investors wanting to examine other companies that satisfy the strict Caviar Cruise standards, you can view the full screen results here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. The information presented is based on data provided and should not be the sole basis for an investment decision. Investors should conduct their own thorough research and consider their individual financial circumstances and risk tolerance before making any investment.
