MAGIC SOFTWARE ENTERPRISES (NASDAQ:MGIC) – A Quality Stock Worth Considering

MAGIC SOFTWARE ENTERPRISES (NASDAQ:MGIC) was identified through our Caviar Cruise screen, which focuses on high-quality companies with strong fundamentals. The firm, which develops and provides software platforms, demonstrates several characteristics that align with quality investing principles.

Key Strengths

• High Return on Invested Capital (ROIC): MGIC has an impressive ROIC (excluding cash and goodwill) of 37.0%, well above the 15% threshold for quality stocks. This indicates efficient use of capital to generate profits.
• Strong Profit Quality: The company’s five-year average profit quality stands at 160.0%, meaning it converts net income into free cash flow at an exceptional rate.
• Low Debt Burden: With a Debt-to-Free Cash Flow ratio of 1.42, MGIC could repay its debt in just over a year using current cash flows, reflecting financial stability.
• EBIT Growth Outpacing Revenue: MGIC’s five-year EBIT growth of 12.6% suggests improving profitability, a positive sign for long-term sustainability.

Fundamental Analysis Summary

Our report assigns MGIC a 6/10 overall rating, with strengths in profitability and financial health. Key takeaways:

• Profitability: Scores 7/10, with strong ROIC (14.28%) and solid operating margins (11.07%).
• Valuation: Priced reasonably relative to peers, with a P/E of 17.07, below industry averages.
• Growth: Revenue has grown at 11.18% annually over five years, with analysts expecting continued growth.
• Dividend: Offers a 4.14% yield, though dividend payouts have declined slightly in recent years.

While the company faces minor concerns, such as a lower gross margin (28.43%) compared to peers, its overall financial health and efficient capital allocation make it a compelling candidate for quality investors.

Our Caviar Cruise screener lists more quality stocks and is updated regularly. For a deeper look, review the full MGIC fundamental report.

Disclaimer

This is not investment advice. Always conduct your own research before making investment decisions.