PTC INC (NASDAQ:PTC) Stands Out as a Quality Investment with Strong Growth and High ROIC

Quality investing looks for companies with lasting competitive edges, solid financials, and steady growth, traits that make them appealing for long-term holds. The Caviar Cruise stock screener, based on Luc Kroeze’s approach, selects businesses with strong revenue and profit growth, high returns on invested capital (ROIC), reasonable debt, and healthy cash flow conversion. These measures help investors find firms likely to perform well over time.

PTC INC (NASDAQ:PTC), a global software firm focused on product lifecycle management (PLM) and industrial IoT solutions, fits well within this model. The company’s financials meet multiple quality-investing standards:

Revenue and Profit Growth

The Caviar Cruise screen requires at least 5% yearly growth in revenue and EBIT over five years. PTC surpasses these marks:

• Revenue growth (5Y CAGR): 9.6%
• EBIT growth (5Y CAGR): 38.2%

Notably, EBIT growth outruns revenue growth, pointing to operational efficiency and pricing strength. This gap hints at PTC’s ability to scale or manage costs well, signs of a high-quality business.

High Return on Invested Capital (ROIC)

ROIC shows how well a company uses capital to create profits. The screen looks for an ROIC (excluding cash, goodwill, and intangibles) above 15%. PTC’s ROICexgc of 101.5% is outstanding, meaning it earns strong returns from its main operations. This matters to quality investors, as it reflects lasting competitive edges, like PTC’s firm place in CAD and PLM software for industrial users.

Strong Cash Flow and Debt Management

Quality investors favor firms that turn profits into free cash flow (FCF) while keeping debt in check. PTC’s numbers impress:

• Debt/FCF ratio: 1.7 (below the screen’s cap of 5)
• 5-year average Profit Quality (FCF/Net Income): 158.2%

A Debt/FCF ratio under 2 means PTC could clear its debts in less than two years using current FCF, showing financial strength. Profit Quality over 100% signals the company makes more cash than accounting profits, good for dividends or reinvestment.

Fundamental Analysis Snapshot

PTC’s fundamental report gives a 6/10 rating, noting strengths and watchpoints:

• Profitability (8/10): High margins (27% operating margin, 81% gross margin) and rising ROIC.
• Financial Health (5/10): Low debt but weaker liquidity (current/quick ratios under 1).
• Valuation (5/10): P/E of 37.7 is high vs. the S&P 500 (27.9), but growth may justify it.
• Growth (6/10): Strong past EPS growth (23.7% CAGR) and expected revenue growth (9.6% yearly).

While liquidity and valuation need care, PTC’s core strengths—high ROIC, cash flow, and margin gains—match quality investing ideals.

Industry Trends and Competitive Edge

PTC works in areas with long-term growth drivers, like digital transformation (PLM) and industrial IoT. Its tools, such as Windchill and ThingWorx, are key to manufacturing processes, making it hard for customers to switch. This fits the Caviar Cruise screen’s focus on firms with lasting competitive edges and stable demand.

Finding More

For investors hunting similar quality picks, the Caviar Cruise screener lists top-tier stocks.

Disclaimer: This analysis is not investment advice. Do your own research or talk to a financial advisor before investing.