For investors aiming to assemble a portfolio of lasting businesses, the quality investing method centers on finding companies with lasting competitive strengths, sound financial condition, and steady profitability. The "Caviar Cruise" stock screening system turns this idea into a group of measurable filters, looking for businesses with a record of solid revenue and profit increase, high returns on invested capital, good cash production, and reasonable debt. This systematic method tries to find companies that are not only doing fine now, but are built to increase value over many years.
One business that now passes this strict screen is Morningstar Inc. (NASDAQ:MORN), a worldwide supplier of independent investment research, data, and analytics. The company's basic role in the investment system and its concentration on necessary, subscription-based services fit the traits quality investors usually value.
Fulfilling the Main Quality Standards
The Caviar Cruise screen uses a number of important financial filters to judge a company's quality. Morningstar's financial picture shows force across these vital areas:
- Profitability and Capital Efficiency: A central part of the screen is a high Return on Invested Capital (ROIC), which gauges how well a company creates profits from its capital base. Morningstar's ROIC leaving out cash, goodwill, and intangibles is at a remarkable 2150.39%, greatly above the screen's 15% limit. This shows a business model needing little capital to make large earnings, a sign of a quality operation.
- Financial Strength and Cash Flow: The screen judges debt sustainability by comparing total debt to free cash flow. Morningstar's ratio of 2.42 is comfortably inside the acceptable boundary of less than 5, implying the company could pay off all its debt with fewer than two-and-a-half years of present cash flow. This shows a solid balance sheet and financial room. Also, the company's five-year average Profit Quality, which compares free cash flow to net income, is a solid 159.65%, much higher than the 75% filter. This means Morningstar is not only profitable but is very good at turning accounting earnings into real, usable cash.
- Past Growth Path: While the given five-year revenue increase number is not present, the screen also requires a history of rising operational profits. Morningstar's five-year EBIT (Earnings Before Interest and Taxes) compound annual growth rate is 14.75%, above the 5% minimum. This increase in core operating earnings, preferably at a rate quicker than revenue increase, indicates getting better operational efficiency and possible price strength over time.
Fundamental Analysis Summary
An examination of Morningstar's detailed fundamental analysis report gives a wider setting for these screening outcomes. The report gives Morningstar a total score of 6 out of 10, noting a varied but generally good profile.
The company's biggest forces are in its profitability, where it gets an 8 out of 10. Its Return on Equity of 30.62% and Return on Assets of 10.42% place it with the best in the capital markets field. The growth score of 6 mirrors firm past performance, with EPS increasing at over 11% each year for the last several years, and analysts expecting continued double-digit earnings increase ahead.
Points to watch include financial condition, which scores a 4. While the debt-to-FCF ratio is very good, the report mentions a low Current Ratio and Quick Ratio, suggesting possible pressure in short-term liquidity compared to duties. On valuation, the stock scores a 5, trading at a P/E ratio near 16.4. This is seen as fair compared to both the wider market and its own past profitability, not showing deep value or high overvaluation.
Investment Case for Quality Owners
For an investor following a quality-focused, buy-and-hold plan, Morningstar offers a strong case. The company works in a specialty with high switching costs and repeating revenue, supplying essential data and study to a worldwide network of investors, advisors, and institutions. Its very high ROIC and good cash conversion confirm the efficiency and lasting nature of its business model. The steady increase in EBIT and firm future increase forecasts suggest the company is not standing still but is building on its strengths.
The screen's filters on debt and cash flow quality straightly speak to the need for strength, making sure the company can handle economic changes and keep investing in its business or give capital back to shareholders without financial stress. While the fundamental report notes short-term liquidity measures, the overall picture is of a profitable, increasing, and financially careful enterprise.
Finding More Quality Options
Morningstar is one of the businesses found by the present Caviar Cruise screen. Investors curious about finding other companies that meet these strict quality investing standards can run the screen themselves to view the complete list of outcomes.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The study is based on data and a screening system described here, and investors should do their own complete research and talk with a qualified financial advisor before making any investment choices. Past performance does not show future outcomes.
