Nordson Corp (NASDAQ:NDSN) Passes the "Caviar Cruise" Screen for Quality Investing

For investors looking to assemble a portfolio of lasting, high-grade businesses, the quality investing method provides a structured system. This approach centers on finding companies with durable competitive positions, reliable profitability, sound financial condition, and the capacity to produce outstanding returns on capital over many years. One organized method to find these prospects is the "Caviar Cruise" stock screen, which selects for firms displaying solid historical expansion, high returns on invested capital, reasonable debt, and trustworthy earnings. A firm that presently satisfies this strict filter is Nordson Corp (NASDAQ:NDSN).

Satisfying the Main Standards for Quality

The Caviar Cruise screen uses several measurable filters to search for quality. Nordson’s financial statement shows it satisfies these important marks, which are created to find businesses with lasting attributes.

• Outstanding Returns on Capital: A fundamental part of quality investing is effective capital use. The screen demands a Return on Invested Capital (leaving out cash and goodwill) over 15%. Nordson greatly surpasses this with a ROICexgc of 33.36%. This shows the firm produces significant profit from each dollar put into its operations, a signal of a wide competitive edge and very good management performance.
• Solid and Rising Profitability: Quality firms do not only increase sales, they increase profits more effectively. The screen searches for a 5-year EBIT (earnings before interest and taxes) expansion rate over 5%, and significantly, for that EBIT expansion to be faster than sales expansion. Nordson’s numbers here are strong:
  • Sales Expansion (5Y CAGR): 8.64%
  • EBIT Expansion (5Y CAGR): 10.64% This difference verifies that Nordson has been able to widen its profit margins over time, probably through pricing strength, operational improvements, or scale benefits.
• Careful Financial Stewardship: A quality business needs a firm balance sheet to endure economic downturns. The screen employs a Debt-to-Free Cash Flow ratio below 5 years. Nordson’s ratio of 3.02 indicates it could hypothetically eliminate all its debt with just over three years of its present free cash flow, indicating a very acceptable debt burden and good financial room.
• Trustworthy Earnings: Accounting profits can be deceptive if not supported by cash. The Profit Quality measure, which calculates free cash flow as a portion of net income over five years, is set at a floor of 75%. Nordson’s average of 113.57% is impressive, meaning it turns more than 100% of its stated earnings into actual cash flow. This supplies generous means for new investment, dividends, or stock buybacks without pressuring finances.

A Broad Fundamental Perspective

An examination of Nordson’s detailed fundamental analysis report supports the image shown by the screen. The firm receives a good total score, with specific high points in profitability. Its margins are top in its field, with a gross margin over 55% and an operating margin close to 26%, each better than over 95% of its machinery industry counterparts. The report also mentions a firm record of dividend increases and a maintainable payout ratio.

The main warning noted in the analysis connects to price. While Nordson’s Price-to-Earnings ratio is approximately aligned with the wider S&P 500, it is viewed as costly in simple terms. This is a common factor for quality stocks, investors frequently pay more for better business traits, which requires a multi-year perspective to validate the purchase price. The report also identifies some smaller issues about liquidity ratios, although these are balanced by the firm’s firm solvency and overall financial condition.

Fit for the Quality Investor

Beyond the figures, Nordson’s business structure matches the non-quantitative features desired by quality investors. The firm works in specialized markets for precision dispensing and fluid control systems, establishing high changeover expenses for its clients in varied sectors from consumer goods to medical equipment. This worldwide, application-focused engineering strategy supplies a lasting competitive edge. Its steady results through economic periods indicates the necessary character of its goods and its pricing strength.

For investors wanting to locate other firms that satisfy similar strict quality tests, the Caviar Cruise screen is a useful initial step. You can review the present screen outcomes and process more here.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. Investors should conduct their own research and consider their individual financial circumstances before making any investment decisions.