For investors aiming to assemble a portfolio of lasting, high-achieving businesses, the ideas of quality investing present a useful framework. This method centers on finding companies with durable competitive strengths, sound financials, and a demonstrated history of creating high returns on capital over many years. One structured way to locate these companies is the "Caviar Cruise" stock screen, which selects for firms with steady revenue and profit expansion, high returns on invested capital, solid free cash flow production, and reasonable debt. The aim is not to locate temporary discounts, but to identify businesses deserving of a lasting ownership position.
A recent use of this screen has identified Mettler-Toledo International (NYSE:MTD) as a possible option for quality-oriented portfolios. The supplier of precision instruments and services seems to fit many of the strategy's main numerical standards, indicating a business established on a base of operational strength and financial control.
Fitting the Main Caviar Cruise Standards
The Caviar Cruise system stresses various important financial measures to evaluate a company's quality. An examination of Mettler-Toledo's numbers shows agreement with these strict filters:
- High Return on Invested Capital (ROIC): A central part of quality investing, ROIC calculates how well a company produces profits from its capital. The screen needs a ROIC (leaving out cash, goodwill, and intangibles) over 15%. Mettler-Toledo greatly surpasses this, with a stated ROICexgc of 65.95%. This notable number shows the company has important competitive strengths, letting it use capital at very high rates of return.
- Profitable Expansion Path: The strategy searches for reliable, profitable growth. Mettler-Toledo's 5-year revenue CAGR of 5.14% and EBIT CAGR of 7.31% both pass the 5% minimum level. Significantly, EBIT growth exceeding revenue growth—as seen here—points to better operational efficiency and possible pricing strength, both traits of a quality business.
- Sound Financial Condition and Cash Flow: Quality businesses finance their activities and growth from solid internal cash creation. Two measures are key here:
- Debt/FCF Ratio: This indicates how many years of present free cash flow would be required to eliminate all debt. A ratio under 5 is viewed as sound. Mettler-Toledo's ratio of 2.54 suggests a suitable and controllable debt amount compared to its cash-producing capacity.
- Profit Quality: This calculates the share of net income turned into free cash flow. The screen searches for a 5-year average over 75%. Mettler-Toledo's number of 99.13% is excellent, showing that its accounting profits are reliably changed into actual, usable cash—a mark of earnings strength and financial stability.
A View of Foundational Soundness
A wider view of Mettler-Toledo's foundational profile, as described in its detailed analysis report, supports the image shown by the screen. The company receives high ratings for profitability, with sector-leading margins and returns that greatly exceed others in the Life Sciences Tools & Services industry. Its financial condition is mostly solid, backed by the sound debt-to-cash flow profile, though analysts point to some small questions about short-term liquidity ratios.
The valuation and growth ratings are more average. The stock sells at a higher price than the wider market, which is common for companies with such high profitability. Still, when measured against its own sector, its valuation measures seem more acceptable. Growth is stable instead of fast, with forecasts for ongoing mid-single-digit revenue growth and double-digit EPS growth in coming years—a profile that matches the steady, foreseeable growth desired by quality investors.
Is MTD a "Buy-and-Hold" Quality Stock?
The numerical filters of the Caviar Cruise screen are made to find companies with the financial traits that support long-term achievement. Mettler-Toledo's very high ROIC, reliable cash-rich profitability, and controlled growth meet these standards. For a quality investor, these measures indicate a business with a lasting advantage, probably coming from its fixed role in precision measurement for vital sectors like pharmaceuticals and scientific research. This operational soundness lets it produce high returns and change them into cash, which can be used for more growth or given to shareholders.
While the screen offers a useful beginning, it is not the last stage. The system itself states that non-numerical factors—like the quality of management, the durability of its competitive strengths, and the long-term patterns helping its markets—are just as important in a final investment choice. Also, the present higher valuation requires belief in the company's capacity to keep its high level of results going forward.
Interested in reviewing other companies that meet the Caviar Cruise quality screen? You can see the complete, current list of outcomes and change the screening settings yourself using this Caviar Cruise Stock Screener.
Disclaimer: This article is for information only and does not form financial guidance, a suggestion to buy or sell any security, or a support of any investment plan. The information shown is based on supplied data and should not be the only foundation for an investment choice. Investors must perform their own complete research and think about their personal financial situation and risk appetite before making any investment.
