Thermon Group Holdings Inc (NYSE:THR) Meets Caviar Cruise Quality Investing Criteria with Strong Growth and High ROIC

The Caviar Cruise stock screening strategy aims to find high-quality companies ideal for long-term, buy-and-hold investing. Based on quality investing principles, this method focuses on firms with steady revenue and profit growth, strong returns on invested capital, reasonable debt levels, and reliable cash flow. The strategy uses measurable financial metrics to select companies with lasting competitive edges, efficient operations, and sound finances.

Thermon Group Holdings Inc (NYSE:THR) fits many of this strategy’s important criteria. The company, known for its engineered thermal solutions for industrial uses, displays qualities often sought by investors focused on quality.

Key Strengths of Thermon Group Holdings (THR)

1. Solid EBIT Growth and Profitability

• The company has achieved a 19.4% CAGR in EBIT growth over the last five years, exceeding the Caviar Cruise screen’s 5% minimum requirement. This points to strong operational results and effective cost control.
• Operating margin (15.95%) and profit margin (10.74%) rank among the best in its industry, showing pricing strength and a competitive edge.

2. High Return on Invested Capital (ROIC)

• Thermon’s ROIC (excluding cash, goodwill, and intangibles) is 27.1%, far above the screen’s 15% standard. This measure is vital for quality investors, as it shows how well a company turns capital into profits.
• An upward trend in ROIC suggests better capital use and operational effectiveness.

3. Sound Debt and Cash Flow Position

• The Debt-to-Free Cash Flow ratio of 2.62 means Thermon could pay off its debt in less than three years using current cash flows—well below the screen’s 5x limit. This financial prudence lowers risk for long-term investors.
• Profit quality (Free Cash Flow/Net Income) averages 585.6% over five years, though this unusually high figure may need closer review to identify contributing factors (e.g., one-time events or conservative accounting).

4. Consistent Revenue and Earnings Growth

• While five-year revenue growth data is missing, analysts estimate future revenue growth at 5.65% per year, meeting the screen’s forward-looking standard.
• EPS has grown at a 20.8% CAGR over five years, showing steady earnings improvement.

Fundamental Analysis Summary

Thermon’s fundamental analysis report gives it a solid score of 6/10, with high marks in profitability (9/10) and financial health (7/10). Key points:

• Profitability: Strong margins and ROIC outperform most competitors in the electrical equipment sector.
• Valuation: P/E (13.97) and forward P/E (11.98) are below industry and S&P 500 averages, indicating fair pricing.
• Growth: While past growth is impressive, future EPS growth is projected to slow to 7.4% annually.

Why These Metrics Are Important for Quality Investors

The Caviar Cruise screen selects companies that build value over time through efficient capital use, stable margins, and controlled debt. Thermon’s high ROIC and EBIT growth highlight a scalable business, while its low debt/FCF ratio reduces risk. The firm’s industry-leading margins also suggest a competitive advantage—a key trait of quality investments.

Find More Quality Candidates

Investors looking for other companies that meet the Caviar Cruise standards can view the full screen results here.

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