For investors aiming to create a durable, long-term portfolio, the ideas of quality investing present a useful structure. This method centers on finding and holding the world's superior companies, those with lasting competitive strengths, sound financial condition, and the capacity to produce steady growth over many years. The "Caviar Cruise" stock screen puts this method into practice by selecting for firms with good past revenue and profit growth, high returns on invested capital, solid cash flow production, and acceptable debt amounts. The aim is not to locate temporary discounts, but to identify businesses constructed to last and increase wealth for their owners over time.
A recent use of this screen has identified Korn Ferry (NYSE:KFY), a worldwide organizational consulting firm, as a candidate deserving of further study by investors focused on quality. The company, which aids clients in coordinating strategy, operations, and talent, seems to satisfy many of the strategy's main quantitative tests.
Satisfying the Main Quality Standards
The Caviar Cruise method prioritizes several important financial measures to assess a company's operational strength and financial endurance. Korn Ferry's profile indicates agreement with these standards:
- High Return on Invested Capital (ROIC): A fundamental part of quality investing, ROIC calculates how well a company produces profits from its capital. The screen demands an ROIC (leaving out cash, goodwill, and intangibles) over 15%. Korn Ferry states a number of 24.24%, showing a very efficient use of capital that greatly passes the limit and points to a firm competitive standing.
- Good Profit Quality and Cash Flow: The strategy appreciates profits supported by actual cash flow. It seeks a five-year average "Profit Quality" (Free Cash Flow/Net Income) over 75%. Korn Ferry's average of 146.9% is outstanding, meaning it has turned net income into free cash flow at a level much higher than 100%. This gives the company significant financial room for dividends, share repurchases, debt repayment, or strategic spending.
- Acceptable Debt Load: To confirm financial durability, the screen employs a Debt-to-Free Cash Flow ratio below 5, showing how many years of present cash flow would be required to settle all debt. Korn Ferry's ratio of 1.46 is very good, indicating a sound balance sheet and little financial danger.
- Steady Profit Growth: While past revenue growth information was not accessible in the given parameters, the screen also asks for steady growth in earnings before interest and taxes (EBIT). Korn Ferry's 5-year EBIT CAGR of 8.64% satisfies the screen's >5% need, showing a capacity to increase its core operational profitability over a long time.
A View of Financial Condition and Value
An examination of Korn Ferry's wider fundamental analysis report supports the view of a firm, well-run company. The report gives KFY a total score of 7 out of 10, pointing out specific strength in profitability and financial condition.
The company functions with sector-leading margins, including a gross margin over 88% and good operating and profit margins that have been improving. Its solvency is solid, with a good Altman-Z score and very comfortable liquidity ratios, meaning it can readily meet its near-term responsibilities. Also, Korn Ferry has a steady and increasing dividend history, having raised its payout for at least five straight years.
From a value standpoint, Korn Ferry seems fairly valued. Its Price-to-Earnings ratio of 11.7 and Forward P/E of 10.4 are both lower than the sector and the wider S&P 500 averages. This implies the market may not be completely valuing the company's quality attributes, which include high returns on capital and a clean balance sheet. You can review the complete details of this analysis in the detailed fundamental report for KFY.
Points for the Quality Investor
While the quantitative screen shows a favorable view, the qualitative parts of quality investing demand a more detailed look. Korn Ferry's business, providing necessary consulting services for organizational strategy, leadership, and talent, gains from lasting corporate movements toward human capital improvement. Its worldwide presence spreads out its revenue sources. However, investors should think about the firm's connection to economic cycles, as corporate spending on consulting can vary with wider business sentiment, a point mentioned in the slowing expected revenue growth.
Locating Other Quality Candidates
Korn Ferry acts as an illustration of the kind of company the Caviar Cruise screen is made to find: one with high capital efficiency, good cash generation, and a clear balance sheet. For investors wanting to study other firms that pass these strict financial filters, you can view and adjust the screen here: Review the Caviar Cruise Stock Screen.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
