For investors aiming to create a durable, long-term portfolio, the quality investing method offers a useful structure. This method centers on finding companies with lasting competitive strengths, sound financial condition, and reliable earnings, businesses worthy of being held "forever." The Caviar Cruise stock screen turns this method into measurable filters, searching for firms with solid revenue and profit increase, high returns on invested capital, good cash flow conversion, and reasonable debt. A company that passes this strict screen deserves more attention from investors focused on quality.
One company that appears from this screen is Novanta Inc. (NASDAQ:NOVT), a supplier of essential technology solutions to original equipment manufacturers in healthcare and advanced industrial markets. The company’s place on the Caviar Cruise list implies its financial profile matches several important parts of quality investing.
Meeting the Main Quality Standards
The Caviar Cruise screen uses defined financial limits to find quality candidates. Novanta’s reported numbers show a good match with these filters:
- High Return on Invested Capital (ROIC): A central part of quality investing, a high ROIC shows a company’s notable skill in creating profits from its capital base. Novanta reports an ROIC (excluding cash, goodwill, and intangibles) of 25.7%, well above the screen’s 15% minimum. This implies management is very good at using capital to build shareholder value.
- Good Profit Increase & Quality: The screen requires EBIT increase above revenue increase, pointing to better operational efficiency. Novanta’s 5-year EBIT CAGR of 11.6% meets the increase standard. Also, its average 5-year Profit Quality, measuring how well net income changes to free cash flow, is a notable 178.8%, greatly exceeding the 75% limit. This shows the company’s earnings are supported by solid, actual cash generation.
- Reasonable Debt Level: Quality companies fund increase carefully. The Debt-to-Free Cash Flow ratio shows how many years of current cash flow would be required to pay off all debt. Novanta’s ratio of 4.43 sits below the screen’s limit of 5, pointing to a reasonable debt load that could be paid from operations in a sensible period.
Fundamental Analysis Summary
A review of Novanta’s fundamental report gives a wider view for these screen outcomes. The report gives the company a mixed but somewhat positive score of 5 out of 10, noting clear positives next to points for thought.
Positives are clear in profitability: Novanta scores well here (7 out of 10), with margins that are better than most of its peers in the Electronic Equipment, Instruments & Components industry. Its operating margin of 12.4% and gross margin of 44.8% indicate pricing strength and effective operations.
The main points for care relate to valuation and financial condition:
- The valuation score is low (2 out of 10), with numbers like a Price/Earnings ratio of 39.84 showing the stock is priced highly compared to both the S&P 500 and its own past. This is a common issue when investing in high-quality companies; investors must judge if the high price is fair given the lasting competitive strengths.
- The financial condition score is average (5 out of 10). While the company has a good Altman-Z score (showing low bankruptcy risk) and a positive Debt/FCF ratio, notes are made about a growing debt-to-assets ratio and a share count that has risen over time.
Growth numbers show a company changing, with good past revenue increase but forecasts for a slower speed going forward, while earnings per share increase is expected to rise.
A Quality Investment Profile
For the quality investor, Novanta shows a useful profile. It works in specialized technology areas, like laser beam delivery, precision motion control, and medical-grade components, that probably give competitive barriers through technical skill and established customer connections. Its financials mirror this position: high returns on capital, very good cash flow conversion, and industry-leading margins all point to a business with pricing strength and effective scale.
The Caviar Cruise screen successfully found these central positives. While the current price requires careful thought and the financial condition numbers need observation, the core business displays many traits quality investors look for: a shown ability to increase profits effectively, generate high returns, and produce significant free cash flow.
Interested in finding other companies that pass the Caviar Cruise quality screen? You can locate and adjust the screen for your own study here.
Disclaimer: This article is for information only and does not make up financial guidance, a suggestion to buy or sell any security, or a support of any investment plan. The information given is based on supplied data and should not be the only ground for an investment choice. Investors should do their own complete study and think about their personal financial situation and risk comfort before making any investment.
