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

FORMULA SYSTEMS 1985-SP ADR (NASDAQ:FORTY) was identified through our Caviar Cruise screen, which focuses on high-quality companies with strong financials and sustainable growth. FORTY operates in the IT services sector, providing software solutions and professional services globally. The stock meets several key criteria for quality investors, including strong profitability, manageable debt, and solid cash flow generation.

Why FORTY Fits the Quality Investing Criteria

• High Return on Invested Capital (ROIC): FORTY’s ROIC (excluding cash and goodwill) stands at an impressive 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 14.33% annual EBIT growth over the past five years, reflecting improving operational efficiency.
• Healthy Debt Position: With a Debt-to-Free Cash Flow ratio of 2.18, FORTY could repay its debt in just over two years using current cash flows, signaling financial stability.
• Exceptional Profit Quality: The five-year average profit quality is 380.82%, meaning the company converts net income into free cash flow at an exceptional rate.

Fundamental Analysis Summary

FORTY receives a neutral overall fundamental rating of 5 out of 10, with strengths in profitability and financial health. Key takeaways:

• Profitability: The company has consistent earnings, a solid operating margin (9.81%), and improving profit margins.
• Growth: Revenue has grown at 10.14% annually over the past five years, with EPS increasing by 15.01% yearly.
• Valuation: While the P/E ratio (21.12) suggests a somewhat expensive valuation, FORTY trades at a discount compared to industry peers on metrics like EV/EBITDA.

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Disclaimer

This is not investing advice. The observations here are based on data available at the time of writing. Always conduct your own research before making investment decisions.