For investors aiming to assemble a portfolio of lasting businesses, the ideas of quality investing offer a useful structure. This method centers on finding companies with lasting competitive strengths, sound financial condition, and the capacity to produce high returns on capital over many years. A structured method to locate these possibilities is a "Caviar Cruise" stock screen, which selects for firms showing solid past revenue and profit increase, high returns on invested capital, strong cash creation, and reasonable debt amounts. The aim is not to locate temporary discounts, but to identify superior businesses deserving of a long-term commitment.
One company that appears from using this strict quality screen is Coca-Cola Consolidated Inc. (NASDAQ:COKE), the biggest bottler of Coca-Cola products in the United States. A detailed look shows how its financial picture matches the central ideas of quality investing.
Matching the Central Quality Standards
The Caviar Cruise screen uses a number of measurable filters to judge a company's quality. Coca-Cola Consolidated's financial measures show a good match with these standards, which are made to find efficient, profitable, and financially stable operators.
- Outstanding Profitability and Capital Use: A central part of quality investing is a high Return on Invested Capital (ROIC), which calculates how well a company produces profits from its capital foundation. COKE performs very well here, with an ROIC (leaving out cash, goodwill, and intangibles) near 41.4%. This is much higher than the screen's 15% limit and shows the company has a strong competitive position, in this instance, its established distribution system and key partnership with The Coca-Cola Company, that lets it earn very good returns.
- Solid and Gaining Earnings Strength: The screen needs a five-year increase in EBIT (Earnings Before Interest and Taxes) of at least 5%, favoring it to be faster than revenue increase as a signal of gaining operational effectiveness. COKE's EBIT has increased at a compound yearly rate of 36.9% over the last five years, greatly exceeding the need. This fast profit increase, even while revenue increase has been more steady, indicates very good cost control and scaling advantages.
- Superior Earnings: Quality investors value cash flow more than accounting profits. The "Profit Quality" measure compares free cash flow to net income. COKE's five-year average is a notable 124%, meaning it changes all of its reported income into free cash flow, and more. This gives great financial room for dividends, debt paydown, or strategic spending without needing outside funding.
- Cautious Financial Setup: To confirm lasting ability, the screen looks at debt compared to free cash flow. COKE's Debt-to-Free Cash Flow ratio is near 3.0, well under the screen's highest of 5. This shows the company could pay off all its debt with only three years of present cash flow, reflecting a solid, workable balance sheet.
Basic Condition and Price Setting
A wider view of the company's basic analysis report backs the idea taken from the screen. Chartmill gives COKE a basic rating of 6 out of 10, noting its very good scores in Condition (7/10) and Profitability (8/10) as a firm base. The report points out better returns on equity and assets compared to industry rivals, steady profitability, and good cash availability. You can see the full, itemized breakdown in the basic analysis report for COKE.
The main point of care in the report relates to Increase (3/10), as future revenue and EPS estimates are not broadly available from analysts, making forward estimates less definite. However, the company's excellent past profit increase and high profitability help balance this uncertainty. On price, the report indicates the stock is valued similarly to industry averages, trading at a large discount to the wider S&P 500 on a P/E basis, a point for price-aware quality investors to note.
Is COKE a Quality Investment?
For an investor using a quality approach, Coca-Cola Consolidated offers a strong argument. It runs a necessary, simple business inside a huge, steady market. Its financial measures meet the important points that quality screens are made to locate: outstanding returns on capital, strong cash creation, solid profit increase, and a cautious debt picture. These are the signs of a company with competitive strengths and skilled leadership.
While the absence of clear analyst increase estimates needs extra careful review, the company's past results and financial soundness suggest it is made to last. It shows the main quality investing feature of changing a dependable business model into better financial outcomes for shareholders over the long term.
Want to look at other companies that meet this strict quality screen? You can locate the full list and change the settings yourself using the Caviar Cruise stock screener.
Disclaimer: This article is for information only and does not make up financial guidance, a suggestion to buy or sell any security, or a support of any investment plan. Investors should do their own study and talk with a qualified financial advisor before making any investment choices.
