FORMULA SYSTEMS 1985-SP ADR (NASDAQ:FORTY) Fits the Caviar Cruise Strategy with Strong ROIC and Profit Growth

The Caviar Cruise strategy is a stock screening method focused on finding high-quality companies for long-term investment. Based on quality investing principles, it looks for businesses with solid revenue and profit growth, good returns on invested capital, reasonable debt levels, and steady cash flow. The approach selects firms with strong past financial performance, lasting competitive edges, and efficient operations.

A company that fits these standards is FORMULA SYSTEMS 1985-SP ADR (NASDAQ:FORTY). This Israeli IT services and software solutions firm displays traits that match the Caviar Cruise strategy’s criteria.

Key Metrics Matching the Caviar Cruise Strategy

• High Return on Invested Capital (ROICexgc):
  The company has an outstanding ROICexgc of 173.57%, well above the strategy’s 15% minimum. This figure is important for quality investors because it shows how well a firm generates profits from its capital. A high ROIC points to effective operations and a lasting competitive edge.

• Strong EBIT Growth:
  FORTY has achieved a 14.33% compound annual growth rate (CAGR) in EBIT over the last five years, exceeding the screen’s 5% requirement. When EBIT growth outpaces revenue growth, it often means better profitability, driven by factors like economies of scale or pricing power—key traits for long-term investments.

• Solid Debt Management:
  The company’s debt-to-free cash flow ratio is 2.18, below the screen’s maximum of 5. This suggests FORTY could pay off its debt in just over two years using its current free cash flow, showing financial stability and lower risk for investors.

• Excellent Profit Quality:
  With a five-year average profit quality (free cash flow to net income) of 380.82%, FORTY shows a strong ability to turn accounting profits into real cash. While unusually high, this number indicates reliable cash generation compared to reported earnings, a sign of financial health.

Fundamental Analysis Summary

According to Chartmill’s fundamental report, FORTY scores 5 out of 10, reflecting both strengths and weaknesses:

• Profitability: The company does well in operating margin (9.81%) and ROIC (11.20%), beating many peers. However, its gross margin (24.83%) is lower than competitors.
• Financial Health: FORTY has a manageable debt profile, with a good debt-to-FCF ratio. Liquidity metrics like the current ratio (1.31) are decent but not outstanding.
• Growth: Past revenue and EPS growth have been strong, but future estimates are unavailable, limiting forward analysis.
• Valuation: The stock trades at a P/E of 22.99, close to industry averages, while its EV/EBITDA suggests it may be undervalued compared to peers.

Why These Metrics Are Important for Quality Investors

The Caviar Cruise strategy targets firms with lasting competitive advantages, smart capital use, and steady growth—qualities FORTY shows through its high ROIC, strong cash flow, and careful debt handling. While valuation isn’t a main filter in this screen, investors should still check if the current price reflects the company’s quality.

For those wanting to see more companies that meet the Caviar Cruise criteria, the full screen results are available here.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult a financial advisor before making decisions.