For investors looking to assemble a portfolio of lasting, high-standard businesses, the ideas of quality investing offer a useful structure. This method focuses on companies with durable competitive strengths, sound financial condition, and a demonstrated history of producing high returns on capital over many years. The "Caviar Cruise" stock screen is made to methodically find these companies by setting criteria for solid historical expansion, high profitability, and a very strong balance sheet. The aim is not to locate temporary discounts, but to discover businesses that deserve to be held for the long term.
One company that appears from using this strict screen is Cavco Industries Inc. (NASDAQ:CVCO), a top maker of factory-built housing. A detailed look shows a financial picture that matches the main ideas of quality investing.
A History of Profitable Expansion
The Caviar Cruise method begins by requiring steady expansion, not only in total sales but, more critically, in operating profit. This confirms the company is growing effectively and probably gains from scale benefits or the ability to set prices.
Cavco Industries shows this clearly:
- Strong EBIT Expansion: Over the last five years, Cavco's Earnings Before Interest and Taxes (EBIT) have increased at a compound annual rate of 17.93%. This greatly exceeds the screen's minimum need of 5% and points to substantial core operational growth.
- The screen focuses on EBIT expansion more than simple revenue growth because it gives a clearer picture of a company's core operational results, free from financial adjustments or different tax situations. Cavco’s high EBIT expansion rate implies it is turning sales into profits at a notable and rising rate.
High Returns on Capital and Financial Strength
Central to quality investing is the idea of capital efficiency: how effectively a company uses the money put into it to produce profits. A high Return on Invested Capital (ROIC) is a sign of a business with a lasting competitive edge.
- Excellent Capital Efficiency: Cavco's ROIC, measured on core invested capital (leaving out cash and intangibles), is a notable 31.35%. This is much higher than the screen's 15% limit and puts Cavco in the best group of its industry, signaling superior management and a very profitable business model.
- Very Strong Balance Sheet: Quality investors look for companies that can endure economic slowdowns. Cavco's balance sheet is very sound, with a Debt-to-Free Cash Flow ratio near 0.04. This indicates the company could pay off all its debt with less than one month's worth of its yearly free cash flow. The screen applies this below-5 ratio to find companies with very little financial risk and significant room to handle difficulties or seek new options.
High-Standard Earnings
Profit figures can be affected by accounting choices. The Caviar Cruise screen, for this reason, checks the standard of those profits by looking at how much net income becomes actual free cash flow—the real money that can be used to benefit shareholders or fund new projects.
- Leader in Cash Conversion: Cavco's average Profit Quality over the past five years is 98%, much better than the 75% standard. This shows that almost each dollar of reported net income has been received as real cash, giving high trust to its earnings and supplying the means for continued dividends, share repurchases, or expansion projects.
Fundamental Rating Overview
A look at Cavco's detailed fundamental analysis report supports this quality argument. The report gives Cavco a total score of 7 out of 10, with especially good scores in Profitability (8/10) and Financial Health (9/10). It notes the company's high returns on assets and equity, increasing profit margins, and a "very positive" debt position. While the Valuation (3/10) is seen as high compared to its industry—a typical feature for high-standard companies—the report states that its health and profitability scores "could make CVCO a good option for quality investing."
Is Cavco a Quality Investment Option?
Judging by the numerical filters of the Caviar Cruise screen, Cavco Industries makes a strong argument. It displays the necessary features quality investors want: a long-term pattern of solid and profitable growth in the factory-built housing field, outstanding returns on capital that point to a competitive benefit, and a very firm financial base with almost no debt load. The company’s skill in regularly turning profits into free cash flow further supports the lasting nature of its earnings.
For investors wanting to examine other companies that meet similar strict quality filters, the Caviar Cruise screen is a useful first step. You can see the live screen and its present outcomes here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The information shown is based on supplied data and should not be the only ground for an investment choice. Investors must do their own complete research and talk with a qualified financial advisor before making any investment decisions.
