ESCO Technologies Inc (NYSE:ESE) Passes the 'Caviar Cruise' Quality Investing Screen

Last update: Dec 8, 2025

For investors aiming to assemble a portfolio of lasting, high-performing businesses, the quality investing approach provides a disciplined framework. This method concentrates on finding companies with durable competitive strengths, reliable profitability, sound financial condition, and the capacity to produce high returns on capital. The "Caviar Cruise" stock screen puts this philosophy into practice by selecting for firms with a record of strong revenue and profit growth, better returns on invested capital, reasonable debt levels, and trustworthy earnings. The aim is not to locate temporary discounts, but to discover enterprises deserving of long-term ownership.

ESE Stock Chart

A recent candidate from this screen is ESCO Technologies Inc (NYSE:ESE), a maker of engineered products and systems for utility, aerospace, defense, and commercial uses. We can look at how ESCO Technologies matches the main principles of quality investing.

Meeting the Core Quality Criteria

The Caviar Cruise screen uses several numerical filters to find possible quality investments. ESCO Technologies shows strength in many parts of this strategy.

Better Return on Capital: A fundamental part of quality investing is a company's capacity to produce high returns on the capital it uses. The screen asks for a Return on Invested Capital (leaving out cash, goodwill, and intangibles) over 15%. ESCO Technologies greatly passes this mark with a ROICexgc of 45.0%. This shows outstanding efficiency in using its main operational capital to create profits, a signal of a lasting competitive edge and able management.
Solid and Rising Profitability: Quality companies do not only increase sales, they increase profits more effectively. The screen searches for a 5-year EBIT (earnings before interest and tax) growth rate over 5%, preferably faster than revenue growth. ESCO's EBIT has increased at a compound annual rate of 13.5% over the last five years. This increase in core operating earnings, which is faster than its good revenue growth, points to better margins, pricing strength, or economies of scale.
Careful Financial Management: A quality business should be able to handle its debt easily from its cash flows. The screen employs a Debt-to-Free Cash Flow ratio under 5, showing it would take less than five years to pay off all debt using current cash flow. ESCO Technologies performs well here with a ratio of 1.07, meaning its yearly free cash flow almost matches its total debt. This gives important financial room and lowers risk.
Trustworthy Earnings: Accounting profits can be unclear if not supported by real cash creation. The Profit Quality measure (5-year average Free Cash Flow/Net Income) checks this, with the screen needing a number over 75%. ESCO's average of 86.9% indicates that most of its reported net income becomes usable free cash flow, confirming the strength and dependability of its earnings.

Fundamental Condition and Growth Picture

A wider view of ESCO Technologies' fundamental report, which you can examine in detail here, supports its quality traits. The company receives a good overall profitability score, emphasized by industry-leading profit and operating margins that have been increasing over time. Its growth picture is firm, with strong past and projected future growth in both revenue and earnings per share.

While the company's valuation seems high compared to the market, a typical feature among high-quality names, its very good solvency measures, including a low debt-to-equity ratio and a high Altman-Z score, describe a financially stable business. The main areas noted for review are its current and quick liquidity ratios, which, while adequate, are lower than some industry peers. However, given its strong cash creation and small debt load, this is less of a worry for a long-term investor.

Is ESCO Technologies a Quality Fit?

For an investor using a quality-focused, buy-and-hold strategy, ESCO Technologies makes a strong case. It meets the important conditions set by the Caviar Cruise method: it creates outstanding returns on capital, increases profits effectively, keeps a solid balance sheet with little debt, and generates trustworthy, cash-based earnings. These are the features of a business made to build value over the long term.

The Caviar Cruise screen is made to find companies with these basic strengths. If you want to examine other companies that pass this strict quality filter, you can see the full screen and its present results here.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented is based on data provided and should not be the sole basis for any investment decision. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.