POOL CORP (NASDAQ:POOL) Passes the "Caviar Cruise" Quality Investing Screen

For investors looking to assemble a portfolio of durable, high-achieving companies for the long term, the quality investing philosophy offers a useful framework. This method concentrates on finding businesses with lasting competitive strengths, high profitability, sound financial condition, and steady growth, characteristics that let them increase value over many years. The "Caviar Cruise" stock screen puts this philosophy into practice by selecting for measurable indicators that point to corporate strength, like high returns on invested capital, strong profit quality, and a record of increasing earnings quicker than sales.

One company that appears from this strict screening process is POOL CORP (NASDAQ:POOL), the world's biggest wholesale distributor of swimming pool supplies, equipment, and related outdoor living products. A detailed look shows how its operational and financial profile matches the central principles of quality investing.

Meeting the Caviar Cruise Criteria

The Caviar Cruise screen uses a multi-step filter to find companies with a proven record of quality. POOL Corp. meets these initial requirements, giving a numerical basis for more study.

• Profitability and Capital Efficiency: A key part of the screen is a high Return on Invested Capital (ROIC), which gauges how well a company produces profits from its capital base. POOL Corp. shows an ROIC excluding cash, goodwill, and intangibles of 27.03%, well above the screen's 15% minimum. This shows very good management efficiency and a strong business model that creates substantial value from each dollar invested.
• Financial Strength and Cash Flow: The screen demands a Debt-to-Free Cash Flow ratio under 5, confirming a company can easily manage its debts. POOL Corp.'s ratio of 2.69 is solid, implying it could pay off all its debt in less than three years using its present cash flow. Also, its average Profit Quality over five years is 100.42%, meaning its accounting profits have turned completely into real, usable free cash flow. This high-grade earnings profile gives financial room for dividends, share repurchases, or strategic spending without needing too much debt.
• Growth Path: While the screen searches for 5-year revenue growth above 5%, it focuses more on the quality of earnings growth. POOL Corp.'s 5-year EBIT (earnings before interest and taxes) growth of 12.59% is much higher than its revenue growth of 3.11%. This difference is an important sign of rising profitability, often coming from economies of scale, pricing ability, or operational improvements, all signs of a company with a lasting competitive edge.

A High-Level Fundamental View

A check of POOL Corp.'s detailed fundamental report supports the screen's results. The company receives a good total rating, with special ability in profitability, where it gets a 9 out of 10. Its margins lead the industry, and it regularly turns profits into cash. Financial condition is good, backed by a strong Altman-Z score and reasonable debt levels.

The report does mention points for investor note. Recent growth has slowed, with a small year-over-year decrease in revenue and earnings, and future growth projections are temperate. Its valuation, while not high, is not seen as cheap, trading at a Price-to-Earnings ratio generally similar to the wider market. For a quality investor, these items are not direct reasons to avoid but rather details for perspective; the higher valuation is backed by the company's high returns and profitability, and cyclical slowing is not unusual.

The Qualitative Case for Quality

The numerical filters tell only part of the account. POOL Corp. also displays several non-numerical features valued by quality investors. It has a leading market position in a specialized industry, gaining from high switching costs for its professional contractor clients. Its business is fairly simple to grasp, distributing necessary maintenance products to a group of existing pools. This makes a durable, repeating income stream connected to the installed base of pools in its areas, which has increased steadily over time. While not free from economic downturns, the need for pool upkeep gives a degree of downturn protection.

Finding More Quality Candidates

POOL Corp. acts as a clear example of how methodical screening can find companies with the financial indicators of long-term quality. For investors wanting to examine other companies that meet the same strict filters, the Caviar Cruise screen is available here, offering a changing beginning point for more investigation.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.