For investors looking to assemble a portfolio of strong, high-achieving companies for the long term, the ideas of quality investing offer a useful framework. This method looks for businesses with lasting competitive strengths, sound financial condition, and a clear history of creating high returns on capital. One practical way to find these companies is the "Caviar Cruise" stock screen, which uses a set of strict, measurable filters to find firms with standout past performance and solid financial traits. The screen looks for consistent revenue and profit increases, high returns on invested capital, reasonable debt, and good earnings that become free cash flow.
Aerospace and defense company HEICO Corp. (NYSE:HEI) comes forward as a clear example from this screening process, showing a financial picture that matches the central ideas of quality investing.
Matching the Main Rules for Quality
The Caviar Cruise screen rests on several basic pillars, each made to assess a different part of a company's quality and longevity. HEICO's financial numbers show a good match across these important areas.
Continued and Profitable Increase A main filter needs both 5-year revenue and EBIT (earnings before interest and taxes) compound annual growth rates (CAGR) to be above 5%. This confirms the company is not only growing its sales but is doing so profitably. HEICO clearly goes beyond this minimum.
- Revenue Increase (5Y CAGR): 10.46%
- EBIT Increase (5Y CAGR): 22.02%
Significantly, HEICO's EBIT increase has been faster than its revenue increase over this time. This is an important sign for quality investors, as it points to better operational efficiency, pricing ability, or scale benefits, traits of a business with a competitive edge.
Excellent Capital Use Maybe the most important number for quality investors is the return on invested capital (ROIC), which shows how well a company creates profits from its capital. The screen requires an ROIC (leaving out cash, goodwill, and intangibles) above 15%. HEICO's number is very high.
- ROIC (ex. cash, goodwill, intangibles): 36.48%
This very high return implies HEICO has strong competitive barriers, letting it put earnings back to work at very good rates, which is a strong driver for long-term shareholder value growth.
Financial Soundness and Earnings Trustworthiness Quality companies are not weighed down by too much debt and produce real, usable cash. The screen checks this by needing debt to be payable with under five years of free cash flow and that, on average, at least 75% of net income changes into free cash flow.
- Debt / Free Cash Flow: 2.52 years
- Earnings Trustworthiness (5y avg.): 120.24%
HEICO's low debt-to-FCF number points to a solid balance sheet and good ability to meet duties. Its earnings trustworthiness ratio above 100% is especially noteworthy; it means the company's reported earnings are fully supported by, and even bettered by, cash from operations, a mark of very good earnings quality and financial care.
A Broad Fundamental Picture
A look at HEICO's wider fundamental analysis report supports the image shown by the screen-specific numbers. The company gets a good total rating of 7 out of 10, with specific strong points in profitability (score: 8/10) and increase (score: 8/10).
- Profitability: HEICO has sector-leading margins, with a Profit Margin of 15.39% and an Operating Margin of 22.72%, doing better than most of its aerospace and defense industry counterparts. Its various return numbers (ROA, ROE, ROIC) are steadily good.
- Increase: The company has shown strong historical increase in both revenue and earnings per share. Analyst forecasts suggest ongoing, though somewhat slower, increase in the coming years.
- Price & Condition: As is common with high-quality companies, the stock has a high price, shown in a lower price score (3/10). Its financial condition score (6/10) is acceptable, helped by a good Altman-Z score and reasonable debt, though it indicates some dilution from share issuance in recent years.
For a complete look at these ratings, you can see the full fundamental analysis report for HEICO.
Summary
For investors using a quality-centered, buy-and-hold plan, HEICO Corp. offers a notable example. The company meets the strict filters of the Caviar Cruise screen, showing a strong mix of better-than-average increase, very high profitability on capital, sound financial condition, and trustworthy cash flows. These features point to a business with lasting competitive strengths in its specific markets, specifically, making FAA-approved alternative aircraft parts and specialized electronic parts. While its high price needs thought, the core financial traits match what quality investors look for: a well-run firm able to build value over a very long period.
The Caviar Cruise screen is made to find companies with these lasting traits. HEICO is one of the present names that meets this strict test. To see other companies that fit these rules for quality investing, you can use the screen yourself through this Caviar Cruise Stock Screener.
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Disclaimer: This article is for information only and is not financial advice, a suggestion to buy or sell any security, or a support of any investment plan. Investors should do their own study and talk with a qualified financial advisor before making any investment choices.
