Champion Homes Inc (NYSE:SKY) Fits the Caviar Cruise Quality Investing Strategy

The Caviar Cruise stock screening strategy is designed to find high-quality companies ideal for long-term investment. Based on quality investing principles, this method looks for firms with solid revenue and profit growth, good returns on invested capital, reasonable debt levels, and steady cash flow. The approach highlights lasting competitive edges, efficient operations, and strong finances, traits that help businesses grow value over time.

Champion Homes Inc (NYSE:SKY) appears as a strong match for these standards. Next, we review how SKY fits the Caviar Cruise criteria and why it could interest quality-focused investors.

Key Quality Metrics Where SKY Performs Well

1. Strong EBIT Growth (5Y CAGR: 22.11%)
   The Caviar Cruise screen looks for at least 5% yearly EBIT growth, as rising operating profits show efficient scaling and pricing strength. SKY’s 22.1% growth far exceeds this mark, pointing to solid operational performance.

2. High Return on Invested Capital (ROICexgc: 25.2%)
   ROIC tracks how well a company earns profits from its capital investments. The screen prefers firms with ROIC over 15%, and SKY’s 25.2% (excluding cash, goodwill, and intangibles) indicates effective capital use, a key trait of quality businesses.

3. Low Debt Relative to Free Cash Flow (Debt/FCF: 0.69)
   A Debt/FCF ratio under 5 is ideal, showing manageable debt. SKY’s 0.69 ratio means it could pay off all debt in less than a year with its free cash flow, highlighting financial stability.

4. Strong Profit Quality (5Y Avg: 110.4%)
   Profit Quality (FCF/Net Income) above 75% signals dependable earnings turning into cash. SKY’s 110.4% average over five years suggests not only good cash flow but also disciplined reinvestment.

5. Positive EBIT Growth vs. Revenue Growth
   While SKY’s 5-year revenue growth data is missing, its EBIT growth exceeding revenue growth (where reported) would show better margins, a sign of operational efficiency or cost control.

Additional Strengths Beyond the Screen

A closer look at SKY’s fundamental analysis reveals more positives:

• Profitability: The company beats 76% of peers in Return on Assets (9.4%) and 71% in ROIC (10.5%). Margins have improved recently.
• Financial Health: An Altman-Z score of 6.29 suggests low bankruptcy risk, while a Debt/Equity ratio of 0.08 shows little borrowing.
• Growth Path: Revenue rose 22.7% YoY, with a 5-year EPS CAGR of 25%. Analysts expect steady future growth.

Valuation Notes

SKY trades at a P/E of 17.5, slightly above its industry (14.0) but below the S&P 500 (27.6). While not cheap, its quality metrics may support a higher price for long-term investors.

Industry Support

As a maker of factory-built homes, SKY gains from housing shortages and demand for affordable, modular options, a trend that could drive continued growth.

Further Research

For investors searching for similar quality stocks, the full Caviar Cruise screen results can offer more ideas.

Disclaimer: This article is not investment advice. Do thorough research or consult a financial advisor before making investment decisions.