For investors aiming to assemble a collection of durable, high-achieving companies for the future, the ideas of quality investing provide a useful structure. This method centers on finding businesses with lasting competitive strengths, high profitability, sound finances, and a history of steady expansion. The "Caviar Cruise" stock filter is made to methodically search for these features, using measurable standards like solid revenue and profit increases, high returns on invested capital, consistent free cash flow production, and a reasonable amount of debt. The aim is not to locate temporary discounts, but to discover companies constructed to last and increase wealth over years.
One company that appears from using this strict filter is Tapestry Inc (NYSE:TPR), the owner of luxury accessory names Coach, Kate Spade, and Stuart Weitzman. A detailed look at its financial statement shows many qualities that match the quality investing view closely.
Profitability and Capital Efficiency
Central to quality investing is the search for companies that produce high returns on the money used in the business. This is calculated by the Return on Invested Capital (ROIC), which shows how well a company turns its investments into earnings.
- Outstanding ROIC: Tapestry shows a very high ROIC (leaving out cash, goodwill, and intangibles) of 64.86%. This is much higher than the Caviar Cruise filter's strict limit of 15% and puts the company in the best group of its field, doing better than 93% of similar companies. A ROIC this high points to strong brand value and effective operations, letting Tapestry produce significant earnings from its brand and store investments.
- High and Improving Margins: The company keeps very good profitability measures, with an Operating Margin of 21.41% (higher than 89% of the industry) and a Gross Margin of almost 76%. Importantly, both its Operating and Gross Margins have increased over the last five years. This pattern of improving margins is a main part of the advanced Caviar Cruise filter, as it shows pricing ability, operational skill, and a better competitive standing.
Growth and Financial Health
Quality companies need to show not only past success but also the potential for careful growth and financial stability. The Caviar Cruise system looks at both previous results and the condition of the balance sheet.
- Strong Earnings Growth: While its 5-year revenue CAGR of 4.05% is moderate, Tapestry's 5-year EBIT (earnings before interest and taxes) CAGR is a solid 26.13%. This fits the filter's requirements and, more significantly, shows that EBIT growth has been much faster than revenue growth. This "profitability cycle" is a sign of quality, meaning the company is operating more effectively and making more from each sale.
- Better Cash Flow and Debt Control: A key check of financial condition is a company's ability to handle its debt with the cash it produces. Tapestry does very well here, with a Debt-to-Free Cash Flow ratio of 1.48. This means the company could pay off all its debt in under a year and a half using its present free cash flow, which is much better than the filter's goal of below 5. This shows very little financial danger.
- High-Grade Earnings: The filter seeks companies that change accounting profits into actual cash. Tapestry's average Profit Quality over five years is a very high 208.53%, meaning its free cash flow has been over two times its net income. This large extra cash gives great room for strategic spending, dividends, share buybacks, or more debt decrease.
Valuation and Overall Fundamental Picture
While quality investing frequently means paying a higher price for outstanding businesses, valuation perspective is still relevant. Tapestry's present valuation mirrors its strong situation.
- The stock sells at a Price-to-Earnings (P/E) ratio generally similar to both the wider S&P 500 and its industry average. Considering its higher profitability and growth details, this may be viewed as a fair price for the quality available.
- A full fundamental review of Tapestry gives it a high total score of 7 out of 10. The report points out "excellent" grades for both profitability and financial health, stating the company is "very profitable, without any liquidity or solvency problems." It ends by saying these grades make Tapestry "appropriate for quality investing."
Conclusion
Tapestry Inc offers a clear example for quality investors. It meets the Caviar Cruise filter by showing top profitability through its excellent ROIC and improving margins, careful growth shown by strong earnings rise, and very firm financial health with little debt compared to its large cash flow. These number-based advantages are supported by a group of known, approachable luxury brands with worldwide presence. For investors creating a long-range collection, Tapestry stands for a business whose basic qualities fit the purpose of owning lasting, well-run companies able to build value through different economic periods.
To see other companies that meet the Caviar Cruise quality investing filter, you can see the complete filter standards and findings here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any investments. Investors should perform their own study and talk with a professional financial consultant before making any investment choices.
