FORMULA SYSTEMS 1985-SP ADR (NASDAQ:FORTY) – A Quality Stock Worth Considering

FORMULA SYSTEMS 1985-SP ADR (NASDAQ:FORTY) was identified by our Caviar Cruise screen as a potential candidate for quality investors. The company, which provides software solutions and IT professional services, meets several key criteria for long-term investment. Below, we examine why FORTY stands out.

Key Strengths of FORTY

• High Return on Invested Capital (ROIC): FORTY boasts an impressive ROIC (excluding cash and goodwill) of 173.57%, far exceeding the 15% threshold set by the Caviar Cruise screen. This indicates efficient use of capital to generate profits.
• Strong EBIT Growth: The company has delivered a 5-year EBIT growth rate of 14.33%, showing consistent improvement in operational profitability.
• Healthy Debt Management: With a Debt-to-Free Cash Flow ratio of 2.18, FORTY can repay its debt in just over two years using current cash flows, reflecting financial stability.
• Exceptional Profit Quality: The 5-year average Profit Quality stands at 380.82%, meaning the company converts net income into free cash flow at an exceptional rate.

Fundamental Analysis Summary

FORTY receives a fundamental rating of 5 out of 10, placing it in the middle range compared to IT Services peers. Key takeaways:

• Profitability: Scores well on operating margin (9.81%) and ROIC but has a lower gross margin (24.83%).
• Financial Health: Debt levels are manageable, and liquidity metrics are acceptable, though slightly below industry averages.
• Valuation: P/E ratio (20.56) is reasonable compared to the industry, and the EV/EBITDA ratio suggests the stock is undervalued relative to peers.
• Growth: Past revenue and EPS growth have been solid, though future estimates are unavailable.

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Disclaimer

This is not investment advice. Always conduct your own research before making investment decisions.