For investors looking to assemble a group of lasting, high-standard businesses, the principles of quality investing offer a persuasive structure. This method centers on finding companies with durable competitive strengths, reliable earnings, and sound financial condition, with the plan of owning them for many years. One orderly process for finding these companies is the "Caviar Cruise" stock screen, which uses a set of strict, measurable filters to find firms with notable past results, high returns on capital, and trustworthy earnings.
A major company that results from this strict screening is TE CONNECTIVITY PLC (NYSE:TEL), a worldwide top maker of connectors and sensors. The company's financial statement matches the central ideas of quality investing, making it a stock that deserves more study for investors using this method.
Matching the Central Standards for Quality
The Caviar Cruise screen rests on several basic supports made to distinguish outstanding businesses from the average ones. TE Connectivity's financial numbers show a solid match with these supports:
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Continued and Earning Growth: The screen calls for at least a 5% compound annual growth rate (CAGR) for both sales and EBIT (earnings before interest and taxes) over five years. It also requires that EBIT growth exceeds sales growth, pointing to better operational effectiveness and pricing ability. TE Connectivity performs well here, with a 5-year sales CAGR of 8.8% and a higher EBIT CAGR of 14.4%. This difference proves the company is not only increasing sales, but is also turning that growth into profit more effectively.
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Exceptional Capital Use: Possibly the most important measure for a quality investor is Return on Invested Capital (ROIC), which calculates how well a company produces profits from its capital. The screen sets a demanding level at 15%. TE Connectivity's ROIC, figured on its main invested capital, is a sound 28.9%, showing notable management skill and a durable competitive edge that lets it achieve high returns.
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Financial Stability and Earnings Trustworthiness: The method stresses financial soundness by needing a Debt-to-Free Cash Flow ratio under 5, indicating a company can repay debt promptly from its cash production. TE Connectivity's ratio of 1.8 is very good, showing little financial danger. Also, the "Profit Quality" filter, which weighs free cash flow against net income, looks for a 5-year average above 75%. TE Connectivity's average of 109% shows it is changing all of its reported profits into actual, spendable cash, and more, a sign of an established and financially strong business.
A Broad Fundamental Look
A look at TE Connectivity's detailed fundamental report supports the image shown by the screen. The company gets a solid total fundamental score of 7 out of 10, with specific high points in earnings and financial condition.
- Earnings Strength: TE Connectivity gets an 8 out of 10 for earnings. It has top-tier margins, with an Operating Margin of 20% that beats almost 97% of similar companies in the Electronic Equipment, Instruments & Components field. Its ROIC of 13.9% also puts it in the best group of the industry.
- Strong Financial Condition: The company's health score of 8 out of 10 is supported by a clean balance sheet. The very good Debt-to-FCF ratio is emphasized, and its Altman-Z score shows no failure risk. While some cash measures are typical compared to peers, the report states this is balanced by very good debt safety and earnings.
- Investor Payouts and Growth: TE Connectivity has a steady and rising dividend, with a record of raises for more than ten years and a maintainable payout ratio. Growth is steady, with past EPS growth over 15% each year and experts forecasting good sales and earnings growth in the coming years.
- Price Consideration: With a P/E ratio near 26, the stock is not low in simple terms but sells for less than its field average. The price score of 6 shows a reasonable cost for a company of this standard, particularly when thinking about its high earnings and growth potential.
Is TE Connectivity a Quality Investment?
For an investor using the Caviar Cruise screen as a first step, TE Connectivity makes a persuasive argument. It meets the numerical filters very well, showing the signs of a quality firm: lasting growth from operational gains, exceptional returns on capital, very strong finances, and trustworthy cash flows. These are the exact features that let a business build value over many years, through different economic periods.
While the screen finds numerical strength, a complete quality investing review would also think about non-numerical aspects like the company's fixed place in automotive, industrial, and communications areas, its worldwide presence, and the lasting trends from electrification and data linking. The numerical base, however, is clearly solid.
Find Other Quality Possibilities The Caviar Cruise screen is made to methodically find companies with these lasting traits. TE Connectivity is one instance that met the standard. You can review the present screen outcomes and locate other possible quality investments by seeing the live Caviar Cruise screen here.
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Disclaimer: This article is for information only and is not financial guidance, a suggestion, or a proposal to buy or sell any security. Investing has risk, including the chance of losing the original amount. You should do your own study and talk with a certified financial consultant before making any investment choices.