Lincoln Electric Holdings (NASDAQ:LECO) Passes the 'Caviar Cruise' Quality Investing Screen

For investors aiming to assemble a portfolio of lasting, high-achieving businesses, the principles of quality investing offer a useful framework. This method centers on finding companies with durable competitive strengths, high profitability, and sound financial condition, with the plan of owning them for many years. One organized way to find these companies is the "Caviar Cruise" stock screen, which selects for firms displaying better-than-average past revenue and profit increases, high returns on invested capital, strong cash flow production, and reasonable debt. The screen highlights not only expansion, but profitable and efficient expansion, where profits grow faster than sales and capital is used well.

A recent search using this process has pointed to Lincoln Electric Holdings (NASDAQ:LECO) as a candidate for more detailed review. The maker of arc welding and cutting equipment seems to satisfy a number of important numerical standards that quality investors look for.

Aligning with the Main Quality Standards

The Caviar Cruise screen uses a set of strict financial tests. Lincoln Electric’s reported numbers show a good fit with these main requirements:

• Lasting Expansion: The screen demands at least 5% yearly growth in both revenue and EBIT (earnings before interest and taxes) over five years. Lincoln Electric goes beyond this, with a 5-year revenue CAGR near 6.0% and a higher EBIT CAGR of 11.6%. Importantly, EBIT growth has been greater than revenue growth, a sign of better operational efficiency and possible pricing strength.
• Outstanding Capital Use: A key idea of quality investing is a high return on invested capital (ROIC), showing a company's skill at generating earnings from its capital. The screen looks for an ROIC (without cash, goodwill, and intangibles) over 15%. Lincoln Electric performs well here, with a number of 34.4%, meaning it is very skilled at building value from its investments.
• Sound Financial Condition and Cash Flow: The method checks debt sustainability by comparing total debt to free cash flow (FCF), looking for a ratio under 5. Lincoln Electric’s ratio of 2.3 means it could pay off all its debt in slightly more than two years using its present FCF, showing a very workable debt amount. Also, its average "Profit Quality" over five years—which measures how much net income becomes free cash flow—is a solid 105.3%, above the 75% screen limit and showing earnings are supported by actual cash.

A Broad Fundamental View

A look at Lincoln Electric’s detailed fundamental analysis report supports the image from the screen. The company gets a good total rating of 6 out of 10, with notable performance in two important areas:

• Profitability: With a score of 9 out of 10, the company is a leader in its field. Its Return on Equity (37.1%) and Return on Assets (13.8%) are in the highest groups compared to machinery peers. Both its operating and profit margins are not just high but have increased steadily in recent years.
• Financial Condition: With a score of 7 out of 10, the company’s stability is good. The Altman-Z score points to a very small chance of bankruptcy, and the analysis states that while the debt-to-equity ratio is above some peers, the good free cash flow coverage makes the debt manageable.

The report points to valuation as the main point for thought, stating the stock sells at a higher price compared to its own earnings history. However, it also accepts that such a higher price can be reasonable given the company's excellent profitability and financial condition.

The Importance of These Numbers for the Long-Term Investor

The Caviar Cruise requirements are not random; they are made to find businesses constructed to last and increase value. Lincoln Electric’s high and increasing ROIC indicates a lasting competitive edge—probably from its top brand, wide distribution network, and consumable-focused business model in the welding industry. The good change of profits into free cash flow gives the company options: it can finance growth projects, reduce debt, give capital to shareholders through dividends and buybacks (both things it has done before), or handle economic slowdowns without financial strain. These are exactly the characteristics a quality investor wants when making a long-term investment in a business.

Finding Other Quality Possibilities

Lincoln Electric acts as a clear example of the kind of company the Caviar Cruise screen tries to find. For investors wanting to use this process to discover other possible quality investments, the screen is ready to use and adjust. You can see the present screen settings and outcomes by using this link: Caviar Cruise Quality Stock Screen.

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Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The data shown comes from sources thought to be dependable, but its correctness is not guaranteed. Investors should do their own complete research and think about their personal money situation and risk comfort before making any investment choices.