Manhattan Associates Inc (NASDAQ:MANH) Passes the 'Caviar Cruise' Quality Investing Screen

For investors looking to assemble a portfolio of lasting, high-achieving businesses, the ideas of quality investing present a strong framework. This method centers on finding companies with durable competitive strengths, high profitability, and sound financial condition, with the plan of owning them for an extended period. One organized way to find these companies is the "Caviar Cruise" stock screen, which selects for firms showing steady revenue and profit increase, high returns on invested capital, strong cash generation, and a reasonable amount of debt. A company that now meets this strict group of filters is Manhattan Associates Inc (NASDAQ:MANH).

Matching the Central Standards for Quality

The Caviar Cruise screen rests on a number of measurable pillars of business strength. Manhattan Associates' recent financial results show a solid match with these central ideas.

• Continued Increase: The screen demands at least a 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years. Manhattan Associates easily surpasses this, with a 5-year revenue CAGR of 7.7% and a more notable EBIT CAGR of 17.7%. Importantly, EBIT increase exceeding revenue increase, as it does here, is a main sign of better operational efficiency and possible pricing strength, traits of a quality business.

• Outstanding Capital Effectiveness: Maybe the most important measure for quality investors is a high Return on Invested Capital (ROIC), which calculates how well a company produces profits from its capital base. The screen selects for an ROIC (leaving out cash, goodwill, and intangibles) over 15%. Manhattan Associates reports a remarkable figure of 533.4%, which, while extremely high, highlights the asset-light, high-margin character of its software business. This shows the company needs very little additional capital to grow its profits, a very appealing feature.

• Financial Strength and Cash Flow Soundness: The screen stresses financial condition by requiring a Debt-to-Free Cash Flow ratio under 5, meaning debt could be repaid in theory within five years using present cash flow. Manhattan Associates does very well here with a ratio of 0.0, showing a balance sheet with no debt. Also, the screen checks for high "Profit Quality," meaning free cash flow is at least 75% of net income on average over five years. Manhattan Associates' average of 144.9% greatly exceeds this, showing it turns accounting profits into actual cash even more effectively than it reports earnings, giving it significant financial room.

Fundamental Condition and Valuation Setting

An examination of Manhattan Associates' wider fundamental picture supports the view from the screen. The company receives a high total fundamental score of 7 out of 10, with top marks in Profitability (9/10) and Financial Condition (9/10). Its margins lead its industry, and its perfect solvency is a point of strength. You can see the complete details in the full fundamental analysis report.

The main point for investors is valuation. The stock sells at a high price, with a Price-to-Earnings (P/E) ratio above both its industry and the wider market. This is common for high-quality, increasing software companies and could be reasonable given its outstanding profitability and clear balance sheet. However, it highlights that while Manhattan Associates displays many features wanted by quality investors, purchase price stays a main factor in the decision.

A Business Aligned with Lasting Directions

Beyond the figures, Manhattan Associates works in an area connected to long-term, stable directions. As a supplier of supply chain, inventory, and omnichannel software, its products are essential infrastructure for retailers, manufacturers, and logistics companies managing global trade. This places the company in an increasing market with strong customer loyalty, competitive edges from deep expertise, and importance through economic changes, all non-quantitative factors valued by quality investors.

For investors wanting to use this method to find other possible choices, the Caviar Cruise screen is a helpful beginning. You can see and adjust the present screen here.

Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. Investing has risk, including the possible loss of principal. Readers should do their own research and talk to a qualified financial advisor before making any investment choices.