For investors looking to assemble a portfolio of durable, high-achieving companies for the long term, the principles of quality investing present a useful framework. This method goes beyond searching for low-priced stocks and concentrates on finding businesses with lasting competitive strengths, very good financial condition, and the capacity to produce steady, high returns on capital. One organized method for locating these companies is the "Caviar Cruise" stock screen, which uses a set of numerical filters to separate firms with good past growth, solid profitability, and healthy balance sheets.
A recent result from this screen is RB Global Inc. (NYSE:RBA), the operator of the Ritchie Bros. and IAA auction platforms for commercial assets and vehicles. The company's worldwide marketplace for heavy equipment and salvage vehicles seems to display a number of traits that match the quality investing approach.
Matching the Central Standards for Quality
The Caviar Cruise screen is constructed on basic filters intended to gauge a company's past performance and operational effectiveness. RB Global's financial picture indicates a good alignment with these central needs:
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Continued Growth: The screen calls for a minimum 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years. RB Global clearly passes this, with a 5-year revenue CAGR of 8.39% and a notable EBIT CAGR of 29.02%. Significantly, EBIT growth greatly exceeds revenue growth, a main screen filter that points to increasing profitability and possible economies of scale or pricing strength.
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Strong Return on Capital: A core idea of quality investing is evaluating how efficiently a company uses its capital. The screen needs a Return on Invested Capital (excluding cash, goodwill, and intangibles) above 15%. RB Global's ROICexgc of 19.62% easily meets this standard, showing it produces considerable profits from its central business investments.
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Good Financial Condition and Cash Flow: Quality companies should not be weighed down by debt. The screen employs a Debt-to-Free Cash Flow ratio under 5 years as a measure for acceptable leverage. RB Global's ratio of 4.97 falls just inside this boundary, implying its free cash flow could pay off all debt in fewer than five years. Additionally, the company shows very good "profit quality," turning accounting earnings into actual cash. Its 5-year average Profit Quality of 143.6% is much higher than the screen's 75% minimum, pointing to sound, cash-producing operations.
Fundamental Analysis Overview
An examination of RB Global's detailed fundamental report gives a wider, summary perspective that supports the screen's results while pointing out some points for investor review. The report gives RBA a total fundamental rating of 5 out of 10, observing an average score for financial health and profitability, very good growth, but a valuation that seems high.
- Growth is a Definite Positive: The report points out "excellent growth," with good past performance in both revenue and earnings per share (EPS), and optimistic forecasts for future growth.
- Profitability Shows a Varied View: While RB Global has sector-leading operating and profit margins, the report states that its Return on Invested Capital (5.29%) is similar to peers but lower than the 3-year industry average. This contrasts with the screen's ROICexgc calculation, highlighting the need to know the exact metrics applied.
- Valuation Requires Careful Review: As the report notes, the stock "is valued quite expensive already." With a P/E ratio close to 30, investors are paying a higher price for the company's growth story and market standing, which is a common factor for quality stocks.
The Quality Investment Case for RB Global
The numerical filters of the Caviar Cruise screen aid in spotting a business model with appealing features. RB Global runs a worldwide, asset-light marketplace that gains from network effects, more buyers and sellers draw more participants, forming a lasting competitive edge. Its services across different asset types, from construction equipment to salvage vehicles, provide variety and probable some downturn stability, as transactions persist through economic cycles. The capacity to convert a large part of earnings into free cash flow provides management options to reinvest, reduce debt, or give capital to shareholders, all signs of a quality business.
For investors wanting to examine other companies that meet this strict group of quality filters, the complete Caviar Cruise screen is available here, providing a changing beginning point for more study.
This article is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. The analysis is based on data and a specific screening methodology, investors should conduct their own due diligence and consider their individual financial circumstances before making any investment decisions. Past performance is not indicative of future results.
