For investors aiming to assemble a portfolio of outstanding companies for the long term, the principles of quality investing offer a useful framework. This method centers on finding businesses with lasting competitive strengths, sound financial condition, and a consistent ability to produce high returns on capital. The "Caviar Cruise" stock screen is built to methodically filter for these characteristics, highlighting measurable factors like solid revenue and profit expansion, high returns on invested capital, strong free cash flow production, and reasonable debt amounts. The aim is not to locate temporary discounts, but to identify superior enterprises deserving of long-term holding.
One company that currently meets this strict screen is Fair Isaac Corp. (NYSE:FICO), the analytics software firm most recognized for its FICO credit scores. 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 important filters to distinguish quality companies from others. Fair Isaac Corp. shows capability across these vital areas:
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High Profitability and Capital Effectiveness: A fundamental idea of quality investing is a company's capability to produce high returns on the capital it uses. FICO performs well here, with a Return on Invested Capital (leaving out cash, goodwill, and intangibles) of about 743%. This remarkable number, which is much higher than the screen's 15% minimum, shows that the company's main operations are very profitable and effective. For a quality investor, this indicates a strong competitive position and very good management performance.
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Solid and Getting Better Historical Expansion: The screen requires at least a 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years, with EBIT expansion exceeding revenue expansion. FICO's numbers are notably better:
- Revenue Expansion (5Y CAGR): 14.7%
- EBIT Expansion (5Y CAGR): 22.4%
The reality that EBIT is expanding more quickly than revenue is an important quality indicator. It suggests operating leverage, pricing ability, and getting better profit margins,features of a business that is growing efficiently.
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Superior Earnings and Financial Stewardship: Quality investing values real cash production over accounting earnings. The screen asks for a five-year average Profit Quality (Free Cash Flow/Net Income) above 75%. FICO's average of 115.9% shows it changes more than 100% of its net income into free cash flow. This gives significant financial room for strategic investments, share buybacks, or debt repayment. Also, its Debt-to-Free Cash Flow ratio of 4.14 is well under the screen's maximum of 5, meaning its debt amount is reasonable compared to the cash it produces.
Basic Condition and Valuation Setting
A look at FICO's wider basic analysis report confirms its quality picture while noting points for investor thought. The company gets a solid total rating of 6 out of 10, with special strength in Profitability (score: 9/10) and Growth (score: 8/10).
- Advantages: The report points out "superior" profitability, with sector-leading margins and returns on capital. Growth is called "solid," with speeding up revenue forecasts for the next years. Financial stability is acceptable, backed by a good Altman-Z score.
- Points to Note: The report mentions a lower Financial Condition score (4/10), mainly because of low liquidity ratios (Current and Quick Ratios under 1). This is typical for software companies with subscription models but needs watching. Valuation (score: 4/10) is seen as high on basic P/E measures, though this is balanced by the company's exceptional growth and profitability, which could support a higher price for some investors.
You can review the complete, itemized separation of these measures in the detailed basic analysis report for FICO.
A Prospect for the Quality-Centered Portfolio
For investors using a quality-oriented, buy-and-hold plan, Fair Isaac Corp. makes a strong argument. Its business,providing important analytics and decision-making software,gains from high customer switching expenses, repeating revenue flows, and a key part in the worldwide financial system. The numerical proof from the Caviar Cruise screen backs this view, displaying a company that mixes very high profitability, solid cash-based expansion, and careful capital management.
While its price is not low and its balance sheet liquidity is thin, these elements are often judged differently by quality investors who value business model strength and long-term capital growth over near-term price measures. FICO's financial numbers suggest it has the lasting competitive strengths and effective operations that quality plans look to hold for the long term.
Want to find other companies that meet the Caviar Cruise quality screen? You can execute the screen yourself and view the complete list of current prospects here.
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Disclaimer: This article is for informational and educational purposes only. It does not form a suggestion to buy, sell, or hold any security, including Fair Isaac Corp. (FICO). All investment choices carry risk, and readers should perform their own complete investigation and talk with a qualified financial advisor before making any investment choices.
