STERIS PLC (NYSE:STE) Emerges as a Top Quality Investment Pick Based on Caviar Cruise Screening

STERIS PLC (NYSE:STE) has become a possible choice for investors focused on quality after a screening process based on the Caviar Cruise strategy. This method, rooted in quality investing principles, looks for firms with solid financials, lasting competitive edges, and steady long-term growth potential. The approach highlights measurable factors like revenue and profit growth, strong returns on invested capital, effective debt handling, and the capacity to turn earnings into free cash flow.

Main Requirements and STE’s Performance

1. Revenue and EBIT Growth
The Caviar Cruise screen sets a minimum 5% yearly growth in revenue and EBIT over the last five years. STERIS PLC surpasses these benchmarks with:

• Revenue growth (5Y CAGR): 6.34%
• EBIT growth (5Y CAGR): 12.57%

This strong performance points to both revenue growth and better operational efficiency, key traits of high-quality firms. The fact that EBIT growth is higher than revenue growth hints at cost advantages or pricing strength, both attractive qualities for long-term investors.

2. Strong Return on Invested Capital (ROIC)
ROIC is a vital measure for quality investors, showing how well a company uses capital to produce profits. The screen selects firms with an ROIC (excluding cash, goodwill, and intangibles) above 15%. STERIS PLC achieves an outstanding 25.17%, well above the target. This reflects efficient capital use and a lasting competitive edge, as the firm generates high returns from its investments.

3. Solid Free Cash Flow and Debt Control
Quality firms should maintain reasonable debt levels compared to cash flow. The screen seeks a Debt-to-Free Cash Flow (FCF) ratio under 5, meaning the company could pay off its debt in five years using current FCF. STERIS PLC’s ratio is 2.63, showing a cautious balance sheet and financial flexibility.

Additionally, the company’s 5-year average Profit Quality (FCF/Net Income) of 186.77% is remarkable, far above the 75% minimum required by the screen. This indicates STERIS turns accounting profits into actual cash at a high rate, a sign of dependable earnings.

4. Profitability and Margin Consistency
The Caviar Cruise strategy prefers firms with stable or improving margins, signaling pricing strength and operational discipline. While STERIS’s gross margin (44.01%) is average compared to peers, its operating margin (17.80%) ranks in the top 10% of its industry, showing effective cost management.

Fundamental Analysis Summary

STERIS PLC’s fundamental report gives it a score of 6 out of 10, noting strengths in profitability and financial stability, with slight concerns about liquidity ratios. Key points include:

• High ROIC and margins outperform most competitors.
• Debt levels are manageable, with a solid Altman-Z score (5.08) suggesting low bankruptcy risk.
• Valuation is fair compared to industry averages, though not cheap.
• Dividend growth (9.04% CAGR over 10 years) adds appeal for income-focused investors.

Why STERIS Suits a Quality Investing Strategy

STERIS works in healthcare and life sciences, offering sterilization and infection prevention solutions, a market with long-term growth potential due to aging populations and higher hygiene standards. Its global presence, recurring service revenue, and high ROIC match the quality investing ideals of lasting competitive advantages and scalable operations.

Learning More

For investors wanting to find other firms that meet the Caviar Cruise criteria, the full screen results can offer more options.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult a financial advisor before making decisions.