For investors aiming to create a durable, long-term portfolio, the ideas of quality investing offer a strong framework. This method centers on finding companies with lasting competitive strengths, sound financial condition, and the capacity to produce steady, high-grade profits through economic cycles. The "Caviar Cruise" stock screen puts this thinking into practice by selecting for firms with good historical revenue and profit increase, high returns on invested capital, strong cash flow creation, and reasonable debt amounts. The aim is not to locate temporary discounts, but to identify businesses deserving of becoming lasting holdings.
One company that results from this strict screening process is PTC Inc. (NASDAQ:PTC), a worldwide software company focused on computer-aided design (CAD), product lifecycle management (PLM), and industrial Internet of Things (IoT) solutions. A detailed look shows how PTC's financial picture matches the central ideas of quality investing.
A History of Profitable Increase
A basic requirement in the Caviar Cruise screen is a minimum 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years. This confirms the company is not idle and is growing its main operations profitably. PTC clearly passes this standard.
- Revenue Increase (5Y CAGR): 8.4%
- EBIT Increase (5Y CAGR): 31.9%
Significantly, PTC's EBIT increase greatly exceeds its revenue increase. This is an important quality signal, as it points to better operational effectiveness and pricing strength. The company is turning more of each dollar of sales into operating profit, probably due to economies of scale and the high-margin, repeating revenue model of its software products.
Outstanding Capital Effectiveness and Cash Creation
For quality investors, the way a company uses its capital is as critical as how much profit it earns. The screen requires a high Return on Invested Capital (ROIC) and good profit quality, judged by the change of net income into free cash flow.
- ROIC (Excl. Cash, Goodwill & Intangibles): 104.1%
- Average Profit Quality (5Y): 150.5%
PTC's ROIC is very high, showing that management is using capital at very effective rates to produce profits. The profit quality number, which averages far above 100% for the past five years, is especially notable. It means PTC's free cash flow has regularly been higher than its reported net income. This is a sign of a financially sound business, giving plenty of cash to reinvest, reduce debt, or give to shareholders without pressuring operations.
A Strong Balance Sheet
Quality investing emphasizes financial durability. The Caviar Cruise screen uses the Debt-to-Free Cash Flow ratio to measure how fast a company could clear its debt using its present cash flow. A ratio under 5 is seen as good.
- Debt / Free Cash Flow: 1.35
PTC's ratio of 1.35 is very good. It suggests the company could in theory pay off all its debt in just over one year using its recent free cash flow, showing a very comfortable and workable debt situation. This financial room is a major benefit in unpredictable economic times.
Fundamental Analysis Overview
A check of PTC's detailed fundamental analysis report supports the results from the screen. The report gives PTC a good total rating of 7 out of 10, noting its clear strengths:
- Profitability (Rating: 9/10): PTC scores very high here, with sector-leading margins. Its Operating Margin of 39.3% and Profit Margin of 28.6% are better than most software industry companies. Both margins have improved in recent years.
- Financial Condition (Rating: 7/10): The company is considered financially healthy. While some short-term liquidity measures are medium, its very good solvency metrics, including the low Debt-to-FCF ratio and a sound Altman-Z score, point to a small chance of financial trouble.
- Increase (Rating: 7/10): PTC has shown good historical increase in both revenue and earnings per share. While analyst forecasts point to a slowing in future increase rates, expected revenue and EPS increase remain positive and acceptable.
The valuation rating of 5/10 shows a mixed view. While PTC's price-to-earnings ratios seem somewhat high in simple terms, they are actually lower than many of its industry peers and the wider S&P 500, indicating the market may already acknowledge its quality features.
Conclusion
PTC Inc. offers a strong example for quality investors. The company meets the numerical requirements of the Caviar Cruise screen very well, showing a potent mix of profitable increase, excellent capital use, and very good cash flow creation. Its fundamental report confirms this, describing a very profitable and financially sound company in the increasing industrial software field. While valuation always needs close study, PTC's financial traits match the kind of lasting, well-managed business that quality investors aim to hold for the long term.
Find Other Quality Choices The Caviar Cruise screen is made to find companies with good quality fundamentals. You can see the present screen results and change the settings to do your own study via this link.
Disclaimer: This article is for information only and does not form financial advice, a suggestion, or an offer to buy or sell any securities. Investing carries risk, including the possible loss of principal. You should do your own study and talk with a qualified financial advisor before making any investment choices.
