Toro Co (NYSE:TTC) Passes Key Quality Investing Screen

Quality investing is a specific method for building a portfolio that concentrates on finding companies with lasting competitive strengths, sound financial condition, and excellent operational performance. The Caviar Cruise stock screening system, built on the ideas of quality investing, methodically selects for businesses that show steady revenue and profit increases, high returns on capital put to work, reasonable debt, and the capacity to turn accounting earnings into actual cash flow. This process intends to separate companies that are not only profitable but are financially sound and well-run, making them possible fits for extended, buy-and-hold investment approaches.

The Toro Co (NYSE:TTC) appears from this strict screening process as a candidate deserving of further study by investors focused on quality. The company, a main supplier of outdoor maintenance and infrastructure products, works through professional and residential divisions, serving a worldwide market with a varied collection of recognized brands.

Financial Health and Profitability

A fundamental part of the quality investing view is a company's capacity to produce high returns on the capital it uses. The Caviar Cruise screen requires a Return on Invested Capital (excluding cash, goodwill, and intangibles) of at least 15%. Toro Co greatly surpasses this level, reporting a solid ROICexgc of 27.5%. This shows that for every dollar put into its main business operations, the company creates over 27 cents in profit, indicating outstanding capital use effectiveness and a durable competitive position that lets it achieve superior returns.

The screen also focuses on financial strength through a cautious debt structure. The Debt to Free Cash Flow ratio, which calculates how many years it would take to pay off all debt using current cash flow, must be under 5. Toro Co displays a very good number of 2.1, showing that its debt level is easily supported and that it has notable financial room. This low ratio is a vital sign of stability and lowers risk for investors with long time horizons.

Earnings Quality and Growth

For a company to be seen as a genuine quality investment, its reported earnings must be of high grade, meaning they are supported by real cash creation. The Caviar Cruise system searches for a 5-year average Profit Quality—the ratio of Free Cash Flow to Net Income—over 75%. Toro Co satisfies this requirement with a result of 87.1%, proving that most of its accounting profits are changed into real cash. This good cash conversion gives the company the resources to finance operations, reduce debt, give capital back to shareholders, and put money into future expansion without heavy dependence on outside funding.

Also, the screen looks for companies with a history of profitable expansion. While Toro's 5-year revenue CAGR of 1.38% is moderate, its 5-year EBIT (Earnings Before Interest and Taxes) CAGR of 10.41% is much more notable. This difference is important; it shows that the company has managed to increase its main operating profits at a much quicker speed than its total sales. This is frequently a signal of better operational effectiveness, economies of scale, or pricing strength—all key features of a quality business.

Fundamental Analysis Overview

An examination of the detailed fundamental analysis report for Toro Co matches the results of the screen, giving the stock a total score of 6 out of 10. The analysis points out several main positive points that align with quality investors:

• Outstanding Profitability: The company scores well on profitability measures, with a Return on Equity of 23.6% and the previously mentioned good ROIC, putting it in the leading group of its industry competitors.
• Dependable Dividend: Toro has a past of consistently paying and raising its dividend, with a history of increases lasting more than ten years.
• Sound Solvency: The company's Altman-Z score shows no bankruptcy danger, and its debt is sufficiently covered by free cash flow.

The report also mentions points for thought, such as a varied valuation view and slower predicted future growth rates, which investors should balance against the company's quality traits.

Investment Considerations for Quality Portfolios

For an investor using a quality approach, Toro Co displays an interesting profile. It shows the financial control, high returns on capital, and good cash flow creation that are essential to the method. The company's settled market standing, collection of trusted brands, and international presence supply the steadiness and competitive edges that quality investors look for in long-term holdings. While valuation and growth outlooks are always important final steps, the fundamental qualities found by the Caviar Cruise screen indicate Toro Co has the basic attributes of a quality investment.

To see other companies that meet the Caviar Cruise quality screen, you can view the full list of results here.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented should not be used as the sole basis for any investment decision. Readers are encouraged to conduct their own thorough research and consult with a qualified financial advisor before making any investment decisions.