Champion Homes Inc (NYSE:SKY) Passes the Quality Investing "Caviar Cruise" Filter

For investors aiming to assemble a portfolio of lasting, well-managed businesses, the quality investing approach provides a structured system. This method centers on finding companies with durable competitive strengths, reliable earnings, sound finances, and the capacity to produce high returns on capital over many years. Instead of pursuing low prices or uncertain expansion, quality investors search for firms that can increase wealth through different economic conditions. One organized method to find these prospects is through filters like the "Caviar Cruise," which selects for measurable signs of quality, including solid revenue and profit expansion, high returns on invested capital, good free cash flow conversion, and a reasonable amount of debt.

A recent run of this filter highlighted Champion Homes Inc (NYSE:SKY), a maker and seller of factory-built housing. On a number of important measures, SKY seems to match the ideals looked for by investors focused on quality.

Match with Quality Investing Filters

The Caviar Cruise filter uses particular, strict criteria to find possible quality investments. Champion Homes shows notable ability in several of these central areas:

• High Return on Invested Capital (ROIC): A fundamental part of quality investing, a high ROIC shows a company's skill at creating earnings from its capital. SKY's ROIC excluding cash, goodwill, and intangibles is a notable 27.95%, well above the filter's minimum requirement of 15%. This implies the company uses its capital with notable success, a vital feature for long-term value increase.
• Notable Debt Management: Quality firms usually have firm balance sheets. The filter uses the Debt-to-Free Cash Flow ratio to measure how fast a company could pay off its debt. SKY's ratio of 0.60 is strong, showing it could repay all debt in under a year using its present free cash flow. This falls comfortably within the filter's goal of below 5 and points to important financial stability.
• Firm Profit Expansion and Quality: The filter requires a record of growing operational earnings (EBIT). SKY's 5-year EBIT compound annual growth rate (CAGR) of 22.11% displays notable and steady increase in its core earnings. Also, its average 5-year Profit Quality—which calculates how much net income becomes free cash flow—is a solid 110.38%. This is better than the 75% filter and shows that SKY's reported earnings are supported by actual cash creation, a mark of high-grade earnings.
• Earnings Exceeding Sales Expansion: A detailed but significant filter in the base screen requires that EBIT growth is faster than revenue growth over five years, suggesting better operational efficiency or pricing ability. While a 5-year revenue CAGR was not given in the settings, SKY's very high EBIT growth rate strongly indicates it meets or beats this standard, pointing to widening margins over time.

Fundamental Condition and Performance Summary

An examination of Champion Homes' wider fundamental view supports the idea from the filter. The company's total fundamental score of 6 out of 10 shows a good foundation, with specific abilities in earnings and financial condition.

• Earnings Ability: SKY earns an 8 out of 10 for earnings. It has been reliably profitable with positive cash flow for years. Its return measures (ROA of 10.41%, ROE of 13.96%) and margins have shown good growth and stack up well against most others in the Household Durables industry.
• Firm Financial Condition: With a condition score of 7, the company's balance sheet is a strength. Its Altman-Z score of 7.95 shows very little bankruptcy risk, and its low Debt-to-Equity ratio of 0.08 confirms very little use of debt financing. This condition offers a stable base for withstanding market changes.
• Expansion and Value Points: The company has shown firm past growth in both revenue and EPS. However, analyst forecasts for future growth are more measured, and the stock's present value is seen as quite high compared to its industry peers, though it matches the wider S&P 500 average. For quality investors, who may accept a reasonable price for a better business, this value setting is a key part of the final investment choice, not an immediate reason to dismiss.

You can review the complete, detailed fundamental analysis for Champion Homes (SKY) here.

Conclusion

Champion Homes offers a notable example of a company that meets a strict, numerical quality investing filter. Its high returns on capital, clean balance sheet with little debt, firm history of profit growth, and high-grade cash flows represent the traits quality investors want: a lasting business able to increase value. While its present value needs careful thought and its future growth rate seems to be settling, the fundamental abilities found by the filter make SKY a stock deserving of more detailed, non-numerical study. This would include evaluating the company's competitive position in the factory-built housing market, the skill of its leadership, and the long-term stability of its demand sources.

For investors wanting to use this method to find other possible quality prospects, the Caviar Cruise stock filter is ready to use and adjust. You can reach the filter and see all present results by using this link: Caviar Cruise Quality Stock Screener.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any securities. The data and analysis presented are based on sources believed to be reliable, but their accuracy cannot be guaranteed. Investors should conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions.