For investors aiming to create a durable, long-term portfolio, the ideas of quality investing present a strong framework. This method centers on finding businesses with lasting competitive strengths, sound financial condition, and the capacity to produce steady, reliable earnings over many years. The "Caviar Cruise" stock screen is built to methodically search for these features, highlighting good past revenue and profit increases, a superior return on invested capital, low debt, and the skill to change accounting profits into actual cash flow. A business that meets this strict screen is not only doing good now but is organized to possibly do well for years ahead.
One business that comes from this quality-centered screen is PAYCOM SOFTWARE INC (NYSE:PAYC), a supplier of cloud-based human capital management (HCM) software. Paycom’s presence on this list calls for a more detailed examination of how its financial and operational details match the central ideas of quality investing.
Matching the Central Rules for Quality
The Caviar Cruise screen uses several measurable filters to search for quality. Paycom’s financial numbers show a good match with these main needs:
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Lasting Increase: The screen asks for at least a 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years. Paycom easily passes this, with a revenue CAGR of 7.05% and a notable EBIT CAGR of 24.97%. Significantly, Paycom’s EBIT increase is much greater than its revenue increase. This is a key sign of better operational effectiveness and pricing strength, implying the company gains from scale advantages as it grows.
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Outstanding Capital Use: A central part of quality investing is a high return on invested capital (ROIC), which calculates how well a business creates profits from its capital base. The screen needs an ROIC (leaving out cash, goodwill, and intangibles) over 15%. Paycom provides a notable 24.11%, showing it uses capital with great effectiveness to build shareholder value.
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Careful Financial Stewardship: To judge financial strength, the screen uses a Debt/Free Cash Flow ratio below 5. Paycom is distinct with a ratio of 0.0, showing a balance sheet with no debt. This gives great operational freedom and eliminates the danger linked to interest costs, particularly when interest rates are higher.
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Reliable Earnings: The screen looks for businesses that consistently change accounting profits into cash, using a 5-year average Profit Quality (Free Cash Flow/Net Income) over 75%. Paycom’s average of 84.06% shows that its stated earnings are supported by good, actual cash creation, adding trust to its financial reports and supplying money for new investment or shareholder benefits.
A View of Financial Condition and Value
A look at Paycom’s wider fundamental analysis report supports the results from the quality screen. The report gives Paycom a good total score of 7 out of 10, noting its exceptional profit-making, which scores a 9. The company’s profit margins lead its industry, and its growth path, while slowing from past high points, stays positive.
The value situation is especially notable. Even with its quality traits, Paycom seems fairly valued. Its Price-to-Earnings ratio of 12.4 costs less than almost 74% of similar businesses and is much lower than the wider S&P 500 average. This pairing of high quality and fair value can be a good find for investors.
It is necessary to see the report’s notes on financial condition, which scores a 6. While the no-debt situation is a key positive, analysts mention a low Altman Z-score, which implies some financial danger according to that particular model. This highlights a central idea of quality investing: a screen gives a useful beginning list, but more detailed investigation into the details of the balance sheet and business plan is always needed.
Is Paycom a "Buy-and-Hold" Quality Choice?
Quality investing is naturally a long-term, buy-and-hold plan focused on business ownership. Paycom’s main product, a full, single-database HCM platform, meets a constant need for business effectiveness and fits a long-term digital change trend. Its high customer loyalty in the stable payroll software market implies a competitive advantage. Financially, its no-debt position, good cash conversion, and superior returns on capital supply the steadiness and freedom valued by quality investors. While future revenue increase is predicted to become more standard, the company’s profit-making and capital effectiveness numbers present an image of an established, well-managed firm.
The Caviar Cruise screen is a useful tool for finding businesses with quality traits. Paycom Software is a clear example of the kind of company this method finds.
You can review the present results of the Caviar Cruise quality investing screen and find which other businesses meet the filters by going to the screen here.
Disclaimer: This article is for information only and is not financial guidance, a suggestion, or an offer to buy or sell any security. The information given is based on supplied data and should not be the only reason for an investment choice. Investors must do their own complete research and think about their personal financial situation and risk comfort before making any investment.
