For investors aiming to construct a durable, long-term portfolio, the ideas of quality investing present a strong framework. This approach concentrates on finding companies with lasting competitive strengths, sound financial condition, and the capacity to produce steady, superior earnings over many years. Unlike pure value investing, which frequently looks for large discounts, quality investing is about paying a reasonable price for outstanding businesses you can keep for a very long time. One methodical way to locate these companies is the "Caviar Cruise" stock screen, which selects for firms with good past revenue and profit increases, high returns on invested capital, reasonable debt, and earnings that are dependably turned into cash.
A recent search using this method has identified CACI International Inc ,CL A (NYSE:CACI) as a possible candidate. The government IT services and technology provider seems to fit many of the screen's numerical standards for a quality company.
Fitting the Main Quality Standards
The Caviar Cruise screen uses a detailed group of filters intended to separate companies with better financial traits. An examination of CACI's numbers shows agreement with several of these important parts:
- High Return on Invested Capital: A central part of quality investing is effective capital use. The screen needs a Return on Invested Capital (leaving out cash, goodwill, and intangibles) over 15%. CACI greatly passes this level with a solid ROICexgc of 47.0%. This shows the company creates significant profit from the capital it has used, a good sign of operational skill and a possible wide economic advantage.
- Good and Getting Better Profitability: The method looks for companies where profit increase is faster than sales increase, pointing to better margins and pricing ability. CACI's 5-year EBIT (earnings before interest and taxes) compound annual growth rate (CAGR) is 11.2%. While a direct 5-year revenue CAGR comparison is not in the given data, the company's recent increase and analyst views indicate a path where profit growth is a main element.
- Reasonable Debt Amount: Financial strength is essential. The screen applies a Debt-to-Free Cash Flow ratio below 5, showing how many years it would take to pay off all debt using current cash flow. CACI's ratio of 4.7 falls within this acceptable limit, indicating a debt load that does not heavily risk the company's financial health.
- Superior Earnings Quality: The screen requires that, on average, at least 75% of net income becomes free cash flow over five years—a test of profit substance. CACI does well here, with a 5-year average Profit Quality of 116.1%. This means the company's reported profits are more than completely received as actual cash, giving options for dividends, share repurchases, new investment, or debt payment.
A View of Financial Condition and Price
Outside the specific screen rules, a wider look at CACI's basic profile gives background. According to a full fundamental analysis report, the company shows a varied but mostly firm picture.
The report gives CACI a total fundamental score of 5 out of 10, showing a middle place within its Professional Services industry. Its strong points are in steady past growth and acceptable profitability margins. The company has shown good revenue and EPS growth over recent years and keeps satisfactory operating and profit margins that do better than many similar companies. Financially, liquidity is fine with acceptable current and quick ratios, and the Altman-Z score points to a small short-term bankruptcy chance.
Points for thought include price and borrowing. The stock's Price-to-Earnings ratio is seen as somewhat high compared to its own past, though it looks more fair next to the wider S&P 500. The Debt-to-Equity ratio is above many industry rivals, which is marked as a less strong area, though it is partly balanced by the good free cash flow creation noted before.
Investment Case for the Quality Investor
For an investor following quality ideas, CACI offers a case made on predictable need, financial control, and strategic place. The company's main client—the U.S. federal government—supplies a source of repeat revenue that is usually stable and linked to long-term national security and update needs. This fits with the quality investing goal of looking for businesses strong against economic drops.
CACI's high return on invested capital and better profit quality directly meet the screen's aim of finding effective, cash-creating operators. These numbers indicate management is skilled at using resources and that the business model does not need constant large capital spending to keep its place—cash made is cash ready for shareholders or for planned growth. The reasonable debt-to-FCF ratio adds to the case for financial strength.
Finding More Possibilities
CACI International stands for one outcome from a careful search for quality. Investors wanting to see the complete set of companies that meet the Caviar Cruise screen's filters can find the screen here. This tool can act as a beginning for more detailed investigation, which for the quality investor must go past the figures to include non-numerical evaluations of competitive strengths, management skill, and long-term industry directions.
Disclaimer: This article is for information only and is not financial guidance, a suggestion, or an offer or request to buy or sell any securities. The information shown is from given data and should not be the only ground for an investment choice. Investors should do their own complete study and talk with a qualified financial advisor before making any investment decisions.
