Eagle Materials Inc (NYSE:EXP) has been identified by an investment screening method that finds good companies. The Caviar Cruise screen, based on quality investing ideas, looks for businesses with good past results, high profitability, and stable financial condition. This method favors companies showing steady revenue and earnings increases, good returns on invested capital, acceptable debt amounts, and the skill to turn accounting profits into real cash flow. Investors using this method usually search for firms with lasting competitive strengths that can provide steady results over long periods.
Financial Performance and Profitability
Eagle Materials displays several traits that match quality investing standards. The company's business performance presents high profitability measures that are better than industry averages:
- Operating margin of 26.04%, better than 92% of construction materials companies
- Profit margin of 19.81%, placed in the high group of the industry
- Return on equity of 30.36%, higher than all industry rivals
These margin numbers show operational effectiveness and possible pricing ability in the construction materials field. The company's capacity to keep such margins implies it has competitive benefits that let it work more effectively than many industry peers.
Return on Invested Capital
A key part of quality investing, return on invested capital gauges how well a company uses capital to produce profits. Eagle Materials shows very good performance here with a ROIC excluding cash, goodwill, and intangibles of 18.72%. This is much higher than the screen's lowest need of 15% and puts the company in the top 15% of its industry. The high ROIC shows that management has been using capital well to build shareholder value, a main point for investors looking for good businesses with efficient capital use.
Growth Path
The company's past growth trends fit quality investing measures. While recent revenue growth has slowed, the five-year EBIT growth of 15.68% easily passes the screen's 5% limit. This EBIT growth being faster than revenue increase hints at better operational effectiveness and possible scale benefits. The company's skill to grow earnings quicker than sales points to good management action and possible competitive benefits that allow for margin improvement over time.
Financial Condition and Cash Flow
Quality investors favor companies with good balance sheets and dependable cash flow production. Eagle Materials shows several positive features here:
- Debt-to-free cash flow ratio of 4.17 years, inside the acceptable 0-5 year span
- Current ratio of 2.73, showing good short-term financial condition
- Profit quality average of 110.92% over five years, passing the 75% limit
The profit quality measure, which matches free cash flow to net income, is especially notable. A number above 100% shows the company is producing more cash than accounting profits, giving financial room for strategic projects, debt paydown, or shareholder returns.
Valuation Points
While quality investing does not concentrate only on finding low-price chances, fair valuation stays meaningful. Eagle Materials trades at a P/E ratio of 15.18, which seems fair next to both the industry average and the wider S&P 500. The company's valuation multiples suggest it is not overpriced in spite of its good quality traits, possibly giving a good starting point for long-term investors.
Fundamental Review Summary
According to ChartMill's full review, Eagle Materials gets a 6 out of 10 in its fundamental rating. The company shows very good profitability with a score of 9/10, backed by high returns on assets, equity, and invested capital. Financial condition gets a medium score of 6/10, with some small questions about debt amounts but generally good liquidity and solvency measures. Valuation looks fair at 6/10, while growth potential shows some slowing with a score of 4/10. The complete fundamental analysis report gives more detail on these measures and their meaning for investors.
Investment Points
For quality investors, Eagle Materials offers several attractive qualities. The company's good market position in construction materials, steady past performance, and strong cash flow production fit well with quality investing ideas. The business model, providing basic materials for infrastructure and construction, offers some downturn protection, though cycles stay a point. Management's history of effective capital use, shown by the high ROIC, adds to the investment argument.
Investors curious about finding similar good companies can view the full Caviar Cruise screen outcomes to find other possible choices meeting these strict quality rules.
Disclaimer: This review is for information only and does not form investment guidance, suggestion, or backing of any security. Investors should do their own study and talk with financial advisors before making investment choices.
