Taylor Devices Inc (NASDAQ:TAYD) Passes the "Caviar Cruise" Quality Investing Screen

For investors looking to assemble a portfolio of durable, well-managed companies for the long term, the quality investing philosophy offers a useful framework. This method looks for businesses with lasting competitive strengths, sound financial condition, and a record of steady, profitable expansion. The "Caviar Cruise" stock screen is built to methodically filter for these characteristics, using measurable criteria to find companies that are expanding effectively and in a lasting way. The screen highlights solid historical revenue and profit expansion, high returns on invested capital, strong cash flow creation, and a prudent balance sheet.

One company that currently passes this strict screening process is Taylor Devices Inc (NASDAQ:TAYD). The North Tonawanda-based firm designs and makes specialized shock absorption, vibration isolation, and energy storage devices for critical aerospace, defense, and industrial markets.

Meeting the Core Quality Investing Criteria

The Caviar Cruise screen uses several key filters to find quality. Taylor Devices not only meets these standards but frequently passes them by a wide margin, illustrating a very efficient and financially sound business.

• Continued and Profitable Expansion: The screen demands a minimum 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years. Taylor Devices shows solid performance here, with a revenue CAGR of 9.13% and a notable EBIT CAGR of 23.88%. Importantly, the EBIT expansion greatly exceeds revenue expansion, a main screen filter that points to better operational efficiency and possible pricing strength.

• Outstanding Capital Efficiency: For quality investors, a high Return on Invested Capital (ROIC) is essential, as it shows how well a company produces profits from its capital base. The screen filters for an ROIC (excluding cash and goodwill) above 15%. Taylor Devices reports an excellent 27.17%, pointing to superior management performance and a likely strong competitive position in its specific markets.

• Financial Strength and Cash Flow Soundness: The method focuses on financial safety and high-grade earnings. Two important filters are a Debt-to-Free Cash Flow ratio below 5 and a 5-year average Profit Quality (Free Cash Flow/Net Income) above 75%.

  • Taylor Devices has no debt, leading to a Debt/FCF ratio of 0.0. This very strong balance sheet offers great flexibility to endure slowdowns and fund new projects.
  • The company’s average Profit Quality over five years is a very high 169.56%, meaning it turns its accounting profit into free cash flow at a rate much greater than 100%. This suggests careful accounting and very efficient cash creation.

Fundamental Condition and Valuation Context

A look at Taylor Devices' detailed fundamental report supports the screening results. The company receives a high overall fundamental rating of 7 out of 10, with notable scores in its financial condition and profitability.

• Profitability Scores: The company has industry-leading margins, with a Profit Margin of 20.04% and an Operating Margin of 20.11%, doing better than over 90% of its machinery industry peers. These margins have gotten better in recent years.
• Very Strong Financial Condition: With a perfect health score of 9, the company’s zero-debt position, a very high Altman-Z score of 21.44, and strong liquidity ratios (Current Ratio of 9.21) highlight its financial steadiness.
• Expansion and Valuation Points: While past expansion has been solid, analysts expect more moderate near-term EPS growth. The valuation shows a varied picture; with a P/E ratio near 21.9, the stock is not low-priced in absolute terms but seems fairly valued compared to its own historical levels and industry norms, particularly when accounting for its high profitability and impeccable balance sheet.

A Candidate for the Quality-Focused Portfolio

Taylor Devices represents the kind of business quality investors want: a specialist operator in a specific niche, producing high returns on capital with very little debt and excellent cash conversion. Its results against the Caviar Cruise filters indicate a business model based on durability and efficiency instead of financial leverage. While its valuation may not suggest a "discount," it shows the premium that stable, high-grade earnings often receive.

For investors wanting to examine other companies that pass similar strict quality filters, the Caviar Cruise screen is a useful beginning. You can see the current screen results and change the settings here.

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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 security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.