For investors aiming to assemble a portfolio of durable, high-achieving companies for the long term, the principles of quality investing offer a strong framework. This method centers on finding businesses with lasting competitive strengths, sound financial condition, and the capacity to produce high returns on capital over many years. One organized way to find these companies is the "Caviar Cruise" stock screen, which selects for firms displaying good historical revenue and profit increase, high returns on invested capital, strong free cash flow production, and a careful debt structure. The screen highlights measurable metrics that indicate operational superiority and financial control, signs of a quality business.
A present example that satisfies this strict screening process is The Trade Desk Inc - Class A (NASDAQ:TTD), a top provider of a cloud-based advertising buying platform. A detailed look at its financials shows why it fits the quality investing philosophy so closely.
Fulfilling the Main Quality Standards
The Caviar Cruise screen rests on a number of basic filters, each made to identify a particular trait of a high-quality business. The Trade Desk's financial results meet or go beyond these standards clearly.
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Lasting Increase: The screen demands a minimum 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years. The Trade Desk greatly exceeds this, with a 5-year revenue CAGR of 15.93% and a notable EBIT CAGR of 30.65%. Importantly, its EBIT increase is faster than its revenue increase, a main screen filter that shows rising profitability and possible scale benefits or pricing strength.
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High Capital Efficiency: A core idea of quality investing is a company's capacity to produce high returns on the capital it uses. The screen requires a Return on Invested Capital (excluding cash, goodwill, and intangibles) above 15%. The Trade Desk performs well here with a ROICexgc of 25.37%, showing it creates substantial value from its operational investments.
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Financial Soundness and Cash Flow Strength: The screen checks balance sheet condition by examining the Debt/Free Cash Flow ratio, favoring companies that could pay off all debt in five years using current cash flow. The Trade Desk shows an extremely strong position here, with a ratio of 0.0, showing a debt-free balance sheet. Also, the screen looks for a high "Profit Quality," measured as the 5-year average of Free Cash Flow to Net Income. While a number near 100% is preferred, The Trade Desk's significant average of 337.04% over five years shows an outstanding capacity to turn accounting profits into actual, usable cash, far passing the 75% minimum.
Basic Condition and Valuation Setting
Beyond the exact screen measures, a wider basic study supports the quality argument. According to ChartMill's detailed fundamental report, The Trade Desk gets an overall rating of 7 out of 10. The report notes several positives matching a quality profile:
- Strong Profitability: The company gets a high profitability score (8/10), displaying sector-leading margins. Its profit margin of 15.72% and operating margin of 18.91% are better than over 90% of its media industry competitors.
- Sound Financial Condition: With a good health score of 7/10, the company has no debt, good liquidity ratios, and a healthy Altman-Z score, indicating a low chance of financial trouble.
- Growth Path Continuing: The growth score is a high 8/10, reflecting strong historical growth in both revenue and earnings per share. While future growth forecasts are thought to slow from past high levels, analysts still project good revenue and EPS growth in the mid-teens percentage range.
On valuation, the report mentions a varied situation. While some measures like the PEG ratio suggest the stock is not inexpensive compared to its growth, its Price-to-Earnings ratios are seen as acceptable and trade below both the wider market and many industry competitors. For quality investors, who usually focus on business strength over low price, this valuation setting may be seen as acceptable for a company showing such good basic traits.
A Quality Example in an Active Market
The Trade Desk works where several long-term structural trends meet: the movement of advertising spending to digital channels, the increase of data-led marketing, and the fast growth of connected TV (CTV). Its platform model builds competitive strengths through size, data understanding, and a steady client base. When joined with its perfect balance sheet, outstanding cash flow conversion, and high returns on capital, the company represents many of the less measurable traits quality investors look for: a wide moat, skilled leadership, and connection to lasting growth trends.
For investors using the Caviar Cruise method as a beginning for study, The Trade Desk offers a strong example of a company that satisfies strict numerical filters while also having the non-numerical signs of a long-term value builder.
Find other companies that meet the Caviar Cruise quality investing standards by using the pre-set stock screen.
Disclaimer: This article is for information only and does not make up financial advice, a suggestion, or an offer to buy or sell any security. The information shown is based on supplied data and should not be the only ground for an investment choice. Investors must do their own complete study and think about their personal financial situation and risk willingness before making any investment.
